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Old 07-15-2008, 01:14 PM   #21
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how are they going to allocate it say 2-3 years before the Target year? my whole point is that for 2030 and 2040 the funds will be selling stocks just as a historical move up will probably start, if you believe that history will repeat itself.

i went back and checked. SP500 went from 100 to 1500 in the last bull market. It went from 100 to 300 in the first 10 years and to 1500 in the latter part. And the whole time the stock portion of the Target funds will be going down and will probably pick up a the end. and since most of the dollars in investing are made in the last years as you go into bonds the money you built up in the accumulation phase will return very little compared to the historical stock returns of past bull markets
Considering you reject shifting to bonds more as you get older (not saying you are right or wrong), you probably have a much higher risk tolerance than many others. Using target retirement funds, not that I am endorsing them or anything, would allow you to take on more risk by buying TR 2045 instead of TR 2035, when you plan on retiring in 2030-2035.
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Old 07-15-2008, 06:52 PM   #22
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We own some, but they're all pretty far out there. Some 2025, 2040 and 2045. All in our Roths, probably the last money we'll draw down.

In 20 years when we're at "normal" retirement age, they'll have drawn down from 90/10 funds to the 60-something/30-something range and continue turning towards fixed income as we get really old.

That makes way more sense to me than having a 25/75 fund in my mid 60's.
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Old 07-15-2008, 11:51 PM   #23
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how are they going to allocate it say 2-3 years before the Target year? my whole point is that for 2030 and 2040 the funds will be selling stocks just as a historical move up will probably start, if you believe that history will repeat itself.

i went back and checked. SP500 went from 100 to 1500 in the last bull market. It went from 100 to 300 in the first 10 years and to 1500 in the latter part. And the whole time the stock portion of the Target funds will be going down and will probably pick up a the end. and since most of the dollars in investing are made in the last years as you go into bonds the money you built up in the accumulation phase will return very little compared to the historical stock returns of past bull markets
The shifting asset allocation of Target funds is a risk management strategy, it is not meant to maximize returns.

DD
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Old 07-16-2008, 08:29 AM   #24
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The shifting asset allocation of Target funds is a risk management strategy, it is not meant to maximize returns.

DD
True, but al_bundy is saying that the risk/return in the time period where they are shifting away from equities and into fixed income will be the time where equities' risk should be met with incredible returns.
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Old 07-16-2008, 09:24 AM   #25
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hopefully i live this long to see if my predictions come out true, but then again human nature never changes
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Old 07-16-2008, 10:22 AM   #26
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True, but al_bundy is saying that the risk/return in the time period where they are shifting away from equities and into fixed income will be the time where equities' risk should be met with incredible returns.
Well, yeah ... if you think you can time the market, then the best strategy is, of course, keep everything in equities until the peak of the next bull market, then move everything to fixed income just before the bear market hits, then at the bottom of the bear move everything back into equities. Then repeat.

But for those of us who aren't confident we can time the market like that, TR funds fit the bill.
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Old 07-17-2008, 03:46 AM   #27
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I bought the T rowe price 2040 fund last year and I'm down like 12% now.

One of my biggest questions is how likely it is for the stock market to greatly out pace bonds and CD's in the future.

I missed out on the 90's bull market and I wonder if I will ever see another one like that in my lifetime.

In the last 10 years Vanguards S&P500 is only up by like 2-3%.....money market beat it.

So with the retirement funds being heavy on stocks in the beginning and then heavy on bonds at the end might be a horrible idea if the stock market does poorly for a long time.

Jim
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Old 07-17-2008, 03:57 AM   #28
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alot of target funds invest in other mutual funds. keep in mind trading fees for these funds for their own internal trading are totally seperate expenses than just the expense ratio a fund posts. sooooo while lots of funds advertise that you dont pay any additional fees for the underlying funds the trading fees are not inclusive in that statement.... one fund family holds 19 other funds in its target series of funds. thats 19 trading fees subtracted off the bottom line and not reflected in the fund expense number.
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Old 07-17-2008, 07:38 AM   #29
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I bought the T rowe price 2040 fund last year and I'm down like 12% now.

One of my biggest questions is how likely it is for the stock market to greatly out pace bonds and CD's in the future.

I missed out on the 90's bull market and I wonder if I will ever see another one like that in my lifetime.

In the last 10 years Vanguards S&P500 is only up by like 2-3%.....money market beat it.

So with the retirement funds being heavy on stocks in the beginning and then heavy on bonds at the end might be a horrible idea if the stock market does poorly for a long time.

Jim
if you look at the history of the Dow it has bull/bear cycles that average around 20 years each going back to the 1800's. before there was a Dow index the stock market still had bull/bear cycles and that is what got Charles Dow interested in it.

we are in a bear cycle that started in 2000, only 12 more years to go
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Old 07-17-2008, 09:15 AM   #30
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I bought the T rowe price 2040 fund last year and I'm down like 12% now.

One of my biggest questions is how likely it is for the stock market to greatly out pace bonds and CD's in the future.

I missed out on the 90's bull market and I wonder if I will ever see another one like that in my lifetime.

In the last 10 years Vanguards S&P500 is only up by like 2-3%.....money market beat it.

So with the retirement funds being heavy on stocks in the beginning and then heavy on bonds at the end might be a horrible idea if the stock market does poorly for a long time.

Jim
Technically the stock market only did poorly for a year and a half back around 01/02 and for a few months a couple of times since.

Its a little pessimistic to take a number from the peak period after a 6 year run-up of biblical proportions, and go from there.

Try taking the 15 year s&p 500 period and annualize it. Or take the 5 year period.
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Old 07-18-2008, 05:41 AM   #31
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Thanks mathjak107 al_bundy and cutefuzzybunny

I liked that bear market comment!

I have looked over long term charts of the stock market like the dow jones industrials since 1900 and it really seems that for the long run stocks are good performers. But so far I just lost money.

I was trying to figure out the best that I could what the difference would be if you just bought CD's over the last 30 years or so vs being in stocks.

And although I'm totally new at figuring this stuff out I used vanguards s&p500 fund since 1976 and the 6 month CD values from the same time.

I gave the CD's one percentage point because you can get better than the listed rate with brokered CD's and a 1 year CD usually has a higher yield.

Since 1976 I got this...

One year CD's (my estimation) 7.5% to 8.0% if you compound the interest.

S&P500 11% to 12% based on vanguards website.

Now the difference in money over 32 years would be HUGE but my big question is will the next 30 years see stocks go up like the last 30 years?

And also do you increase your lifespan by worrying less not being in stocks!!!?

Jim
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Old 07-18-2008, 07:45 AM   #32
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I think inflation on the average (not short-term like the next year or so) will be lower than the past 30 years, but you never know... the past fifteen years have had incredible growth with very low inflation, but this came after a period of 20th century highs in inflation in the U.S., which is what made CDs do so well. I think that I would put average CD rates around 5% moving forward and stock markets (with reinvested dividends) at 9%. With the lower inflation I predicted (probably irresponsibly), this leads to about the same real return. What makes you think companies (large, mid, small, international) still can't produce earnings growth?
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Old 07-18-2008, 07:58 AM   #33
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one of the reasons for low inflation is that post WW2 the US was the only game in town. Europe was in ruins and nobody trusted them because Europe had a history of a continental war every 50 years or so going back to the 1600's if not longer.

Asia was in ruins. The middle east was recovering from European imperialism. Eastern Europe and Russia were communists which is more of a joke than an economic system. South America was also a joke as it was recovering from Spanish imperialism.

The US was the only country capable of providing a reserve currency, even though we have had a spotty history in the past as well. It was the lesser of all evils.

This allowed the dollar to be strong against other currencies. Now that everyone else has learned their lesson it's going to be like that dude from A Beautiful Mind said. It's better to have a smaller piece of a larger pie than a larger piece of a smaller pie.
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