Pro-indexers, what do you recommend for someone facing retirement?
Thanks to everyone who has already contributed to the index fund debate. I believe many readers, myself included, are benefiting from your comments.
Pro-indexers are building a good case for indexing long-term investments -- but what do you recommend for someone facing retirement, with a need to live off their investments?
For example, what asset mix (fund or funds) would you recommend for someone wanting:
- Moderate but steady growth?
- Returns that beat inflation by a minimum of say 4 percent?
- To minimize the odds of losing more than 5% in any one year, or to face a prolonged period of negative returns?
Before answering, please read the following excerpt from AARP...
Quoted from September 2005 AARP Bulletin
Comments by Jerry Korabik, vice president with Ibbotson Associates, a Chicago-based investment research firm
"Historically, the S&P 500 [an index of America's largest 500 companies] has seen an average return of 10.4 percent -- but that is the average over many years. There have been years in which the market goes down and stays down for a considerable time," he says.
Consider two people approaching retirement, Korabik says, each with a 401(k) of $200,000 invested in a basket of S&P 500 stocks. Retiree A left his job in January 1996. Each of the next three years, he withdrew 5 percent of the money. Retiree B left his job in January 2000 and also withdrew 5 percent each year. After three years, Retiree A, who quit when the going happened to be good, has a balance of $382,092. Retiree B, who quit just when the market headed downhill, finds himself after three years with a nestegg of $100,136.
In fact, many people who retired in 2000 saw their nest eggs shrink far more than Retiree B's. That's because many investors do far worse than the S&P 500...
- Read the post that got it all started
- Learn how to submit your post to the debate
about - feedback - disclaimer
• VirtualBank gives you up to 5.13% APY for your savings!
• Blue Cash from American Express: 5% Back on Gas, Up to 5% cash back on eligible purchases, No Annual Fee, 0% Introductory APR for 6 months, Pay over time
• Try Starwood Preferred Guest Credit Card from American Express. Great rewards and first year fee free!
• Bad Credit Home Loans
• Life Insurance in 10 minutes if qualified. No medical exam.
In Step 1, I selected Morningstar's Growth Portfolio for retirees. Now it's time to choose the funds... Read
Is D&C Balanced a fluke, or have other funds demonstrated similar consistency of performance? Using Morningstars fund screener, I went looking for funds with characteristics and performance similar to my D&C Balanced... Read
Today the index fund debate continues with two posts: One clearly pro-index -- and this from Fidelity Observer -- asking pro-indexers for their response to new factors that make managed funds more compelling. Any takers? Read
Today the index fund debate continues with two posts: One posing new questions for pro-indexers -- and this -- featuring the writings of John C. Bogle of Vanguard fame. If, like me, you invest in actively managed funds and have not yet studied Mr. Bogle's ... Read
I recommend the Vanguard Target Retirement funds. You pick the particular fund in the family based on your expected retirement date. When you are young, volatile but high-average-returns investments are used. As time goes on and you approach your retirement, the fund gradually switches to stable, low-average-returns investments to preserve your capital. Best of all, they use bond and stock index funds to keep fees rock bottom.
Check them out at:
http://flagship2.vanguard.com/VGApp/hnw/content/Funds/FundsVanguardFundsTargetOverviewJSP.jsp
I've got ideas on allocations that would be appropriate, but I wouldn't post those here. There might be somebody out there who would actually follow it! I'm not a CFP or RIA so I prefer not to give specific advice. Although I DO like Vanguards TargetRetirement funds (due to low expenses). TRPrice has a good group of similiar funds also.
My biggest recommendation would be NOT to get your financial advice for free on the internet. Go get yourself a fee-only financial planner who can give you objective unbiased advice.
I know a man who just retired with a $300 - $400k portfolio. He refuses to get a retirement plan drawn up because he's concerned about the cost. This is just being pennywise and poundfoolish. It's silly.
Consider the 1k to 2k spent for a quality financial plan as a one-time insurance premium. What kind of insurance? It's a "Don't Screw Up Your Financial Future" insurance policy. It keeps you from making big mistakes. Go get a NAPFA planner to give your situation the once over. Then you would have an allocation that fits your particular situation exactly (tax considerations, retirement accounts, estate planning, pensions & social security, etc.)
Grace,
JC
Bond index funds.
,
