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Planning for Retirement

Started by polly_mer, July 05, 2019, 07:51:43 AM

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pigou

Quote from: monarda on June 08, 2020, 08:40:52 AM
The thing that bothers me about this kind of thread, found on just about every financial forum, is that folks making posts on these threads often see it as a black and white issue, either you pay off your mortgage, or you are mortgaged for as long as possible.  There's plenty of gray area middle ground for your comfort zone.  It's certainly a good mental exercise to read through these threads while you're defining your attitude toward debt and risk. On the MMM forums, there's a long one "Don't pay off your mortgage club". Search with the text  "don't pay off"  or "mortgage pay off" you'll see  the variety of opinions.
This isn't unreasonable: for optimization questions like this, you often end up with corner solutions. E.g. if you have a credit card that has a 10% APY and one that has a 15% APY, the optimal thing to do is to pay off the 15% card first (if you can rule out late and missed payment fees). People may prefer mixing for psychological reasons, but that's not what financial forums are generally set up for. If people want to do what feels good, they can just go with their gut. Usually, forums like this are very much about optimization and squeezing out an extra percentage point in returns -- because over 30 years, that can make a substantial difference in your assets.

Quote
The people posting on these financial forums are all about more more more more more more.
Rarely if ever is the concept of enough brought up.

Some people enjoy optimizing, while others need to do it to retire comfortably. Personally, I don't really get the concept of "enough" for finances, because more money lets me re-allocate my time or expand the things I can do.

Suppose I had an extra million dollars in investments that I didn't need. I could draw down an additional $40,000 per year. Great: that's a couple small grant applications I don't have to write. Maybe I want to eat healthier, and an extra $10,000 per year let's me hire someone to come to my apartment twice a week and prepare fresh food for me. An extra $50,000/year lets me organize a workshop and do whatever I want, without having to report back to a funding agency. An extra $100,000/year means I can spend my summer months working out of a Four Seasons hotel. Or I could set up a summer residency program to connect the field's leading junior scholars.

None of these things are by any stretch necessary, but all of them would make my life more pleasant or interesting. Some would probably be a good contribution to my field of research, too. And if you gave me an extra million a year, I'm sure I could figure out something to do with that, too. Finding things to spend money on is generally pretty easy.

spork

Quote from: clean on June 14, 2020, 10:37:26 AM
QuoteWhat investments will be safest when collateralized loan obligations collapse?

With the additional information, I think that we have already seen the playbook.  What performed best after 2008/2009?

Banks are (hopefully) in a better situation than they were 12 years ago. They undergo stress tests and have more of their own money in the game as a result of the higher capital requirements.  As long as the government and Fed are willing to bail them out, (as the Fed can print as much money as they need, they are always able to... the value of that money (ie inflation issues) is another issue).

The good news is that while the Great Recession had some long lasting problems, none were necessarily permanent.  Investments recovered.  Most housing markets recovered ( and more) .

My own thinking on the issue leads to a first pass answer of residential real estate as a solution.  IF paid for, then the cash flow from the rental will be inflation protected as the land lord can raise rents annually or so to keep up with inflation.  However, I would worry about the financial situation of the state and county or city that it is located.  IF they have to raise money, they will raise property taxes.  If there are no jobs (high unemployment in the area) then it is harder to rent the houses for a market rent (and collect it !) . 

Paid for, at least eliminates the risk that the tenants default will lead to the landlord's default.  However, IF there WERE inflation, then it would have been better to have borrowed the money as the money repaid would have a lower value than the money borrowed.   

[. . . ]

The real estate example reminds me of a couple of my in-laws -- starry-eyed immigrant siblings who purchased a 3-unit apartment building at the height of the real estate market in 2006. One had a fantasy of life on easy street as a landlord occupying one of the three units and the rent on the other two paying the mortgage. The other sibling was the one with the savings and credit rating required by the lender(s). The latter sibling didn't exercise good judgment over the former's desires, they got suckered into a set of mortgages that equated to 100% adjustable-rate financing, and the building lost a third of its value in the 2008 recession. The latter sibling ended up spending $100K on a house she doesn't live in and that will only start building equity when the now-refinanced mortgage is paid off in twenty years. By then she could be dead.
It's terrible writing, used to obfuscate the fact that the authors actually have nothing to say.

mamselle

Is this going to be a problem as well?

   https://www.forbes.com/sites/edwardsiedle/2020/06/13/dol-throws-401k-investors-to-the-wolves/

Or is it more of an upper-level fund management issue?

M.
Forsake the foolish, and live; and go in the way of understanding.

Reprove not a scorner, lest they hate thee: rebuke the wise, and they will love thee.

Give instruction to the wise, and they will be yet wiser: teach the just, and they will increase in learning.

pigou

Unless I'm misreading this, the new regulation just allows private equity funds to be offered as part of 401k plans. Much like you can already put money in those funds through a traditional brokerage account, your employer's plan manager could include such funds. Unless you decide to invest in them, this shouldn't change your risk or your fees.

clean

QuoteIs this going to be a problem as well?

   https://www.forbes.com/sites/edwardsiedle/2020/06/13/dol-throws-401k-investors-to-the-wolves/

Or is it more of an upper-level fund management issue?

I dont think that it is an exaggeration to say that the typical 401k participant is not a sophisticated investor.  I think that they could be easily swayed to move some of their retirement investments/savings toward these accounts.  The article, as I recall, indicated that the fees and risk vs return issues are not in favor of the average investor, but 'the wolves' that run the funds.  (The wolves get the profits and sheep take the risks and the losses).  But there is a 'shit ton' (a metric unit) of money in retirement accounts so those that are pushing to make these investments available to 401k participants are looking for a small percentage of it. 

So, I dont see it being a problem to a well informed populace, but I dont think that the average 401k participant is well informed and would understand the investments that would be involved in these plans. 

Frankly, I thought that someone had to be a 'Accredited Investor'   to be able to invest in such things, but that seems not to be the case.
"(In the United States, to be considered an accredited investor, one must have a net worth of at least $1,000,000, excluding the value of one's primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount ...") 

I wont be putting my money in such funds. 
"The Emperor is not as forgiving as I am"  Darth Vader

pigou

There are private equity ETFs even -- so the average person with a non-retirement investment account can already do some of these investments. They're not my cup of tea (I do index investing only), but they can have a place in a portfolio for some investors.

Some people have 401(k) balances in the 7-digits and even for people with less, they may have more of their savings in traditional brokerage accounts. It may then be advisable to have the PE fund in a tax-advantaged account and hold index funds in a taxable account. The law doesn't have to ban everything that isn't perfectly suited for the average or the least-informed investor.

Almost more importantly, though, I really don't like investment restrictions to "accredited investors" as a policy. Yes, some investments are complex and there's an argument to be made that they shouldn't be actively marketed to small investors. But we're getting to a place where the average investor is de facto barred from investing in the next Google. That undermines market credibility, making it appear like a rigged insider game, and can also impede the functioning of markets: it reduces how much capital is available to boost new companies that could significantly change how we do business and how we live.

It's worth keeping in mind that if everyone puts their money in index funds, index funds stop working. They're sort-of parasitic in that they don't actually provide information about the relative value of companies. They just allow investors with no information to easily benefit from long-term market trends. That's great (and also why I do it), but that's not actually the purpose of the stock market. That is primarily to provide real-time information about the expected future revenue/value of companies, which index funds simply don't do. Neither do any of the "values funds" that ostensibly promote people's ideological values... those profit from a misunderstanding of how stock prices are determined, as people incorrectly think less "demand" for the stock will drive down the price.