Biggest crash in stock market history?

Carson

Carson

Sport Bacon
Team MTBNJ Halter's
Sidebar....

I'm helping my Mom get the financials sorted after my Dad's passing last year. Thankfully, he was very locked-on and nearly everything was held at Vanguard. Mom is surviving spouse and executor of estate, so things are easy there.

Mom will be 75 next month. No mortgage on the house. Car is paid off and a 2018 model. She gets 50% of my Dad's AT&T pension plus his social security. She can live off that with the exception of replacing the car someday and maybe some vacationing; healthcare costs (AT&T group rate) gets deducted right from pension check with good coverage so that is no concern.

My Dad's Vanguard is WAY too aggressive for her. They were setup when he was younger and still working. They are mostly emerging markets, international, small-cap. There are some value and income funds, but obviously the other stock funds far outpaced the conservative ones in the last 10-20 years.

When I became an agent on the account last year with POA for my Dad, I left everything alone for the time being.

Now that the account/funds are in Mom's name, the cost basis looks like it is reset, so now is the time to reallocate. I want simple. So my Mom can understand, mostly. There are many more choices that when my Dad began investing 40+ years ago!

The old formula of having bond percentage about what your age was (so 25/72 stocks/bonds) seems very conservative. Or is that still the general rule? There are a few 60S/40B balanced funds, both actively managed and index funds, that would seem to fit the bill better, no?

I'll be setting up checkwriting in a MM fund as well, so at least a portion of the account will be liquid for her.

Here are some ideas:

Vanguard Target Retirement 2020, about 50/50 mix

Vanguard Total Bond Market II Index Fund Investor Shares**29.70%
Vanguard Total Stock Market Index Fund Investor Shares29.10%
Vanguard Total International Stock Index Fund Investor Shares20.00%
Vanguard Total International Bond Index Fund Investor Shares12.60%
Vanguard Short-Term Inflation-Protected Securities Index Fund8.60%


Vaguard Target Retirement Income, 30S/70B

Vanguard Total Bond Market II Index Fund Investor Shares**37.00%
Vanguard Total Stock Market Index Fund Investor Shares18.00%
Vanguard Short-Term Inflation-Protected Securities Index Fund16.70%
Vanguard Total International Bond Index Fund Investor Shares15.70%
Vanguard Total International Stock Index Fund Investor Shares12.60%

Vanguard LifeStrategy Conservative Growth, 40S/60B

Vanguard Total Bond Market II Index Fund Investor Shares†41.80%
Vanguard Total Stock Market Index Fund Investor Shares23.90%
Vanguard Total International Bond Index Fund Investor Shares17.50%
Vanguard Total International Stock Index Fund Investor Shares16.80%


I do like that investing in one "fund" in reality gets you diversified into 3 or 4 big funds.

Any thoughts would be appreciated.
 
Patrick

Patrick

Overthinking the draft from the basement already
Staff member
Carson said:
Sidebar....

I'm helping my Mom get the financials sorted after my Dad's passing last year. Thankfully, he was very locked-on and nearly everything was held at Vanguard. Mom is surviving spouse and executor of estate, so things are easy there.

Mom will be 75 next month. No mortgage on the house. Car is paid off and a 2018 model. She gets 50% of my Dad's AT&T pension plus his social security. She can live off that with the exception of replacing the car someday and maybe some vacationing; healthcare costs (AT&T group rate) gets deducted right from pension check with good coverage so that is no concern.

My Dad's Vanguard is WAY too aggressive for her. They were setup when he was younger and still working. They are mostly emerging markets, international, small-cap. There are some value and income funds, but obviously the other stock funds far outpaced the conservative ones in the last 10-20 years.

When I became an agent on the account last year with POA for my Dad, I left everything alone for the time being.

Now that the account/funds are in Mom's name, the cost basis looks like it is reset, so now is the time to reallocate. I want simple. So my Mom can understand, mostly. There are many more choices that when my Dad began investing 40+ years ago!

The old formula of having bond percentage about what your age was (so 25/72 stocks/bonds) seems very conservative. Or is that still the general rule? There are a few 60S/40B balanced funds, both actively managed and index funds, that would seem to fit the bill better, no?

I'll be setting up checkwriting in a MM fund as well, so at least a portion of the account will be liquid for her.

Here are some ideas:

Vanguard Target Retirement 2020, about 50/50 mix

Vanguard Total Bond Market II Index Fund Investor Shares**29.70%
Vanguard Total Stock Market Index Fund Investor Shares29.10%
Vanguard Total International Stock Index Fund Investor Shares20.00%
Vanguard Total International Bond Index Fund Investor Shares12.60%
Vanguard Short-Term Inflation-Protected Securities Index Fund8.60%


Vaguard Target Retirement Income, 30S/70B

Vanguard Total Bond Market II Index Fund Investor Shares**37.00%
Vanguard Total Stock Market Index Fund Investor Shares18.00%
Vanguard Short-Term Inflation-Protected Securities Index Fund16.70%
Vanguard Total International Bond Index Fund Investor Shares15.70%
Vanguard Total International Stock Index Fund Investor Shares12.60%

Vanguard LifeStrategy Conservative Growth, 40S/60B

Vanguard Total Bond Market II Index Fund Investor Shares†41.80%
Vanguard Total Stock Market Index Fund Investor Shares23.90%
Vanguard Total International Bond Index Fund Investor Shares17.50%
Vanguard Total International Stock Index Fund Investor Shares16.80%


I do like that investing in one "fund" in reality gets you diversified into 3 or 4 big funds.

Any thoughts would be appreciated.
Click to expand...

If current income is taken care of, then the fluctuations of the market have no serious detrimental effect.
a 30% decrease does not change the situation that she is covered by current income sources.
no sense to get too crazy with the bonds.

if she'd like additional current income, VWEAX or VWALX (tax exempt) throw off a nice monthly amount.

You might want admiral shares, there is a higher min investment, but lower management fees.

i'm in the total market, and total intl market funds which are inside the ones you mention.
i'm not in the intl bond fund - since it doesn't seem to add any real diversity to an already conservative fund.
 
slingblade_uhhuh

slingblade_uhhuh

JORBA Board Member/Chapter Leader
JORBA.ORG
Patrick said:
I used the vanguard advisebot. Have a nice weekend.
Click to expand...
I used Morningstar's portfolio x-ray, for a long while. Until several years ago, when I retired. Then I hired a pro.

Both have been good. Morningstar is great for fund/equity analysis. The hired pro trades in bonds and non-traditional items. Which are less transparent to an average guy.
 
pkovo

pkovo

Well-Known Member
Patrick said:
not if they don't reap the gain of a lower tax bracket, or LTG - it might cost them money, vs doing a roth.
the one benefit is tax-exempt transactions inside the account, which can be accomplished in a roth.
Click to expand...
Roth 401(k) deductions for the win. Benefits of Roth IRA, but you get the company match too. Same annual contribution limits whether the participant defers on a pre-tax or Roth basis.

But I do see your point in regards to someone having the money to defer. I work in the space, and have seen many plans with a generous safe harbor match, yet only a small subset of the staff was taking advantage of it.
 
Fire Lord Jim

Fire Lord Jim

Well-Known Member
djm said:
Hmm I suck at this.. I'm not really taking the money anywhere I'm just trying to duplicate my non-roth position in my roth account. Maybe I can simplify it by asking how disadvantageous it would be to have just one account (roth or plain IRA doesn't matter) and close a position at a profit only to come back and open the same position with the exact amount of cash but at a much higher entry share price.
Click to expand...
Sounds like you want to keep the asset, you just would prefer it in a Roth IRA instead of a traditional IRA? You can do one Traditional to Roth conversion each year. The entire amount converted is taxable; you have no basis in your IRA. Thus the optimal time to convert is during a crash: prices are temporarily low, which means the taxes will be lower. Like having a sale on taxes. The second best time to convert is before the end of the year, as we can only do one conversion per year, so use it or lose it.
 
Patrick

Patrick

Overthinking the draft from the basement already
Staff member
So if i can finish up the condo project, i'll aim for the CFP exam in November.
there is a self-guided course from Kaplan. Looks like it needs about 1000 hours of studying.

if i never actually charge anyone to do actual financial planning, do you think I'll gain
enough incremental knowledge for the course to pay for itself with my own planning? ($4,500 + test fee + prep fee)

current plan: accept market return with most of the money, have some consistently generating income (bond/dividend funds),
be tax efficient, save as much as possible.

of course, it might be like having a coach - just someone that keeps ya honest, tells ya you're doing ok, and yells a bit if ya go
off-course, but sets up a new path. also settles the disagreement between couples. probably a big one.
 
Santapez

Santapez

Well-Known Member
Team MTBNJ Halter's
A comment to @Patrick and @rick81721 on the 401k:

There are a few reasons why a 401K is more beneficial to higher earners.
1) Predominantly higher paying white collar and larger companies will provide a 401k. Small companies typically cannot due to the costs involved in 401k management. My company finally has one after working there for 17 years, and a large issue was the costs associated. There's some new companies that have come along and brought down the costs, but it's still an accounting nightmare for small firms.

This will definitely knock out any smaller companies/businesses from having a 401k. I work for a very stable and money making engineering firm and it's an issue. Nobody working low-paying jobs has access.

2) 401ks are slightly regressive. Lower paid employees will be able to contribute less, therefore will get less match. Their match will also be based on a lower salary.

#1 is basically the big issue I see. Kind of crazy that you can put $6k in an IRA, or depending on your employer have $19,500+match. It makes no sense. In an ideal world the 401k would be dropped and the limits on the IRA would be increased. Or open up 401k accounts to everyone.

#2 very much dumps even more money at higher earners at companies, but as it's a form of compensation at the end of the day, not much different than just paying them more.
 
rick81721

rick81721

Lothar
Santapez said:
A comment to @Patrick and @rick81721 on the 401k:

There are a few reasons why a 401K is more beneficial to higher earners.
1) Predominantly higher paying white collar and larger companies will provide a 401k. Small companies typically cannot due to the costs involved in 401k management. My company finally has one after working there for 17 years, and a large issue was the costs associated. There's some new companies that have come along and brought down the costs, but it's still an accounting nightmare for small firms.

This will definitely knock out any smaller companies/businesses from having a 401k. I work for a very stable and money making engineering firm and it's an issue. Nobody working low-paying jobs has access.

2) 401ks are slightly regressive. Lower paid employees will be able to contribute less, therefore will get less match. Their match will also be based on a lower salary.

#1 is basically the big issue I see. Kind of crazy that you can put $6k in an IRA, or depending on your employer have $19,500+match. It makes no sense. In an ideal world the 401k would be dropped and the limits on the IRA would be increased. Or open up 401k accounts to everyone.

#2 very much dumps even more money at higher earners at companies, but as it's a form of compensation at the end of the day, not much different than just paying them more.
Click to expand...

Good points but there's no question 401Ks are beneficial savings vehicles for all wage levels. I nearly fell out of my chair when pat tried to argue that low income earners would be better off putting money in a Roth vs 401K! 🤣
 
Cassinonorth

Cassinonorth

Well-Known Member
Santapez said:
A comment to @Patrick and @rick81721 on the 401k:

There are a few reasons why a 401K is more beneficial to higher earners.
1) Predominantly higher paying white collar and larger companies will provide a 401k. Small companies typically cannot due to the costs involved in 401k management. My company finally has one after working there for 17 years, and a large issue was the costs associated. There's some new companies that have come along and brought down the costs, but it's still an accounting nightmare for small firms.

This will definitely knock out any smaller companies/businesses from having a 401k. I work for a very stable and money making engineering firm and it's an issue. Nobody working low-paying jobs has access.

#1 is basically the big issue I see. Kind of crazy that you can put $6k in an IRA, or depending on your employer have $19,500+match. It makes no sense. In an ideal world the 401k would be dropped and the limits on the IRA would be increased. Or open up 401k accounts to everyone.
Click to expand...

Many, if not most retail chains at this point have 401k's. Wawa, Quick Chek, etc. I had to do some research regarding that while lobbying to get my company to adopt one. I'll see if I still have that document saved somewhere. You'd be shocked....most had matches as well.

Totally fair on the match being better and a way more likely chance of people being able to save even close to the match if they're a higher earner.
 
Patrick

Patrick

Overthinking the draft from the basement already
Staff member
rick81721 said:
Good points but there's no question 401Ks are beneficial savings vehicles for all wage levels. I nearly fell out of my chair when pat tried to argue that low income earners would be better off putting money in a Roth vs 401K! 🤣
Click to expand...

if you are in the 12% tax bracket - pay the 12% at the beginning, and nothing on the earnings,
rather than 12% on all of it. you get the math there ? Sure, you start with 12% less, but they get 12% of the input stream, not the output.

easy math - i have $100 to save, if it is pre-tax, i can put away $113 ish in the 12% bracket - money doubles every 10 years, in 4 years
i have 113->226->452->904->1808. I then pay 12% on the output, i get $1,591
post tax 100,200,400,800,1600 - i get 1600.
ROTH wins.

and the whole point was that traditional favors high earners with the match, and the ability to go from the 33% tax bracket
and a state that has income tax, to a more favorable 20% bracket, and no income tax. (probably what you are doing ?)
same example $100 in 33% bracket
pre tax
151, 302, 602, 1204, 2408 taxed at 20% = 1926 traditional wins.

all examples lowered the take home pay by $100
 
Santapez

Santapez

Well-Known Member
Team MTBNJ Halter's
cassinonorth said:
Many, if not most retail chains at this point have 401k's. Wawa, Quick Chek, etc. I had to do some research regarding that while lobbying to get my company to adopt one. I'll see if I still have that document saved somewhere. You'd be shocked....most had matches as well.

Totally fair on the match being better and a way more likely chance of people being able to save even close to the match if they're a higher earner.
Click to expand...
Yeah, I'm not referring to places like Wawa or Quick Check. They're big companies.

But think of all the family owned bodegas, or basically every gas station, small cleaning company, any restaurant that isn't part of a chain, landscapers, etc. Basically any company that's 30 employees or less, that isn't very high paying a 401k is either going to be non-existant or possibly worse, some high-fee plan that is possibly worse than saving in a taxable account. Any small company that doesn't have a health insurance plan certainly won't have a 401k. And those will be skewed towards lower paid employees.

If you're looking at a 401k, we found Guideline to be pretty good after looking at most of the newer companies offering them. They use Vanguard funds and their fees are low. They are a bit bare-bones in their interface which realistically isn't the worst thing in the world. This was after actual meetings with Guideline and their closest competitors.
 
rick81721

rick81721

Lothar
Patrick said:
if you are in the 12% tax bracket - pay the 12% at the beginning, and nothing on the earnings,
rather than 12% on all of it. you get the math there ? Sure, you start with 12% less, but they get 12% of the input stream, not the output.

easy math - i have $100 to save, if it is pre-tax, i can put away $113 ish in the 12% bracket - money doubles every 10 years, in 4 years
i have 113->226->452->904->1808. I then pay 12% on the output, i get $1,591
post tax 100,200,400,800,1600 - i get 1600.
ROTH wins.

and the whole point was that traditional favors high earners with the match, and the ability to go from the 33% tax bracket
and a state that has income tax, to a more favorable 20% bracket, and no income tax. (probably what you are doing ?)
same example $100 in 33% bracket
pre tax
151, 302, 602, 1204, 2408 taxed at 20% = 1926 traditional wins.

all examples lowered the take home pay by $100
Click to expand...
Wow, I thought you were the math guy. You blew it right off the bat - you have to compare X post-tax dollars (roth) to 1.5X pre-tax dollars (401K). Company match gives you an instant 50% return!
 
shrpshtr325

shrpshtr325

Infinite Source of Sarcasm
Team MTBNJ Halter's
rick81721 said:
Wow, I thought you were the math guy. You blew it right off the bat - you have to compare X post-tax dollars (roth) to 1.5X pre-tax dollars (401K). Company match gives you an instant 50% return!
Click to expand...

only if your company gives you matches, they dont all contribute, my wifes first company only matched 1% of salary, everything beyond that was all you.
 
pkovo

pkovo

Well-Known Member
Patrick said:
if you are in the 12% tax bracket - pay the 12% at the beginning, and nothing on the earnings,
rather than 12% on all of it. you get the math there ? Sure, you start with 12% less, but they get 12% of the input stream, not the output.

easy math - i have $100 to save, if it is pre-tax, i can put away $113 ish in the 12% bracket - money doubles every 10 years, in 4 years
i have 113->226->452->904->1808. I then pay 12% on the output, i get $1,591
post tax 100,200,400,800,1600 - i get 1600.
ROTH wins.

and the whole point was that traditional favors high earners with the match, and the ability to go from the 33% tax bracket
and a state that has income tax, to a more favorable 20% bracket, and no income tax. (probably what you are doing ?)
same example $100 in 33% bracket
pre tax
151, 302, 602, 1204, 2408 taxed at 20% = 1926 traditional wins.

all examples lowered the take home pay by $100
Click to expand...
But the participant can put the deferrals into the 401k as Roth 401k deferrals. They then get the added benefit of a higher contribution limit so they put more away if they choose to, and receive the "free money" from their companies employer contribution if they have one.

For a low income earner, if their company offers a 401k with a Roth option, the only disadvantage I can see versus a Roth IRA is the fact that investment choices will be more limited and conservative in the 401k. And really, that would probably be an advantage for some.

It's also an added benefit that if the company/401k provider are in tune, the whole process should be easy for the participant. Deductions come out of payroll (regardless of whether traditional pre-tax or Roth) and are deposited into the plan which the participant can control. Many plans have an auto-escalation feature, and it will increase the deferrals by a specified percentage at specified intervals on an automatic basis.
 
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