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Old 01-02-2018, 07:42 PM   #1
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Index Funds

I am retired and considering moving away from my financial planner and using index funds for all my investments. Is there a way I can minimize the downside if the market takes a dive? Does anyone have any pointers?
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Old 01-02-2018, 09:23 PM   #2
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You want to follow more than one index and set you allocation percentages to targets you feel comfortable with. I'm invested in three index funds. A Total US Stock Market, Total International Stock Market, and Total Bond. Plus, keep some in cash too. That way, say if the US market takes a dive, you other allocations should help minimize the dive.
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Old 01-02-2018, 09:32 PM   #3
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Well, if you are invested in the market, and the market takes a dive, so will your investments. There is no magic.

And your FA has no magic either. But how much does he/she charge you for that non-magic? At least you will be earning that fee back.

Most people will maintain an asset allocation of enough fixed income (bonds, CDs, cash, etc), so that they don't have full exposure to the market. That limits upside as well - no magic.

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Old 01-02-2018, 09:53 PM   #4
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As mentioned, most of us have both stocks and bonds. If stocks fall, you live off the bonds until stocks come back, which they always have. You donít need an advisor to set up a simple portfolio. That said, you are rewarded for risk. You need to take some risk to earn enough to overcome inflation, thus both stocks and bonds.
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Old 01-02-2018, 10:43 PM   #5
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Originally Posted by easysurfer View Post
You want to follow more than one index and set you allocation percentages to targets you feel comfortable with. I'm invested in three index funds. A Total US Stock Market, Total International Stock Market, and Total Bond. Plus, keep some in cash too. That way, say if the US market takes a dive, you other allocations should help minimize the dive.
This is similar to the 3-fund portfolio advocated by Taylor of Boggleheads: https://www.bogleheads.org/wiki/Three-fund_portfolio
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Old 01-03-2018, 03:20 AM   #6
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I am retired and considering moving away from my financial planner and using index funds for all my investments. Is there a way I can minimize the downside if the market takes a dive? Does anyone have any pointers?
Hopefully you realize that you are asking two separate questions.

The only way to minimize the downside if the market takes a dive is to not be in the market.... the downside is the quid pro quo for the upside.

What most of us here do is to invest invest in both stocks and bonds... usually anywhere from 70/30 to 30/70.... the bonds supply ballast and stability and the stocks provide growth albeit with volatility.

And most of us use index funds to do that... generally broad market index funds like Vanguard Total Stock, Vanguard Total International Stock, Vanguard Total Bond and Vanguard Total International Bond... with just those 4 funds you can have a very sensible, albeit boring, portfolio.
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Old 01-03-2018, 03:53 AM   #7
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To quantify what pb4uski and others have said, I’ve always thought this graphic added perspective. You can’t enjoy the upside (long term returns) without accepting downside (short term paper losses) along the way. Each of us has to choose what risk trade off we can live with, better returns means you’ll get punished more with the inevitable market pullbacks periodically. Staying the course through pullbacks is the key (simple but not easy for some), the 2008-09 meltdown showed that very clearly for those who didn’t panic sell (many/most here).

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Old 01-03-2018, 03:53 AM   #8
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This is similar to the 3-fund portfolio advocated by Taylor of Boggleheads: https://www.bogleheads.org/wiki/Three-fund_portfolio
Retired, simple and lazy are a good combination .
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Old 01-03-2018, 04:54 AM   #9
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I see the term Cash used for investments. What exactly is Cash?

I assume it is liquid savings, no risk, no return.
Savings, checking account?
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Old 01-03-2018, 04:56 AM   #10
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I see the term Cash used for investments. What exactly is Cash?

I assume it is liquid savings, no risk, no return.
Savings, checking account?
As their name implies, cash investments are easily redeemable with small, if any, penalties for withdrawal. Examples of cash investments include money market funds, bank accounts and certificates of deposit (CDs).
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Old 01-03-2018, 05:14 AM   #11
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Well, if you are invested in the market, and the market takes a dive, so will your investments. There is no magic.

Most people will maintain an asset allocation of enough fixed income (bonds, CDs, cash, etc), so that they don't have full exposure to the market. That limits upside as well - no magic.
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As mentioned, most of us have both stocks and bonds. If stocks fall, you live off the bonds until stocks come back, which they always have. You are rewarded for risk. You need to take some risk to earn enough to overcome inflation, thus both stocks and bonds.
+1. Just choose an equity AA that you are comfortable with in the down times. Many people here are around 50-60%.
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Old 01-03-2018, 05:36 AM   #12
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Know the tax situation of any realized gains before making the move.

Does your FP do anything of value for you besides investments?
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Old 01-03-2018, 06:07 AM   #13
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If you look at this Vanguard mutual fund list link

https://investor.vanguard.com/mutual...th-end-returns

you will see four funds in the "Target Risk" section.

Life Strategy Conservative Growth (4 index funds, stock bond 40/60)
Life Strategy Growth (4 index funds, stock bond 80/20)
Life Strategy Income (4 index funds, stock bond 20/80)
Life Strategy Moderate Growth (4 index funds, stock bond 60/40)

These are examples of 4 low cost funds. Each of the Life Strategy funds invests in 4 low cost index funds, US stock, US bond, International stock, International bonds, differing mainly in the percentage allocated to the four index funds. Any one of the Life Strategy funds could be used, depending upon various factors, and you might choose one which would meet your financial goals AND lets you sleep well.

You could use the Target Date funds, listed in the "Target Date" section. You choose the fund that matches your desired stock/bond mix. They gradually become more conservative, reducing the stock allocation over time.

Or you could build your own mix, using Total Stock Index, Total Bond Index and Total International Stock Index. This requires slightly more work in terms of re-balancing, if you wish to maintain the same percentages over time. Or if you wish to have a different percentage mix.

There are so many choices.

To mention the obvious, make sure to read and understand the prospectus of whatever you choose, whether from this post or other funds that other forum members have suggested.
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Old 01-03-2018, 06:36 AM   #14
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I am retired and considering moving away from my financial planner and using index funds for all my investments. Is there a way I can minimize the downside if the market takes a dive? Does anyone have any pointers?
What is your Asset Allocation (AA) at this time? Are you comfortable with that risk level?
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Old 01-03-2018, 06:43 AM   #15
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Originally Posted by easysurfer View Post
You want to follow more than one index and set you allocation percentages to targets you feel comfortable with. I'm invested in three index funds. A Total US Stock Market, Total International Stock Market, and Total Bond. Plus, keep some in cash too. That way, say if the US market takes a dive, you other allocations should help minimize the dive.
+1. This is exactly how we invest.

Not meaning to be too blunt, but if you are seriously asking this question, you have been ill served by your FA. Fire that person ASAP.
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Old 01-03-2018, 07:26 AM   #16
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In addition to having a 60/40 allocation. I am using a mix of different index ETF. For example SPLV or LGLV to somewhat reduce my risk.
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Old 01-03-2018, 08:40 AM   #17
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Lots of good advice here. I will mention one caution, though, that I don't think has been pointed out.

We we talk here about "index" investing, most of us are really talking about "passive" investing. This essentially involves buying a little bit of everything on the belief that, like stocks, no one can predict which sectors (or countries) will be winners in the future.

The hucksters read about the "index investing" trend, though, and are busily working to capture the naive money interested in this rubric. So, beware that "index" may not be what you want. For example, take the "South China Sea Microcap Index Fund." If you can't buy that now, it will soon be invented. This type of "index fund" is really just a trap to get the naive to move from stock-pickers to sector-pickers. Neither strategy is supported by statistical data. Even S&P 500 index funds are really sector funds -- putting their owners 100% into large cap US stocks. So, your key words have already been written here: "Total US Stock," "Total International Stock" and so on.
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Old 01-03-2018, 09:46 AM   #18
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Lots of good advice here. I will mention one caution, though, that I don't think has been pointed out.

We we talk here about "index" investing, most of us are really talking about "passive" investing. This essentially involves buying a little bit of everything on the belief that, like stocks, no one can predict which sectors (or countries) will be winners in the future.

The hucksters read about the "index investing" trend, though, and are busily working to capture the naive money interested in this rubric. So, beware that "index" may not be what you want. For example, take the "South China Sea Microcap Index Fund." If you can't buy that now, it will soon be invented. This type of "index fund" is really just a trap to get the naive to move from stock-pickers to sector-pickers. Neither strategy is supported by statistical data. Even S&P 500 index funds are really sector funds -- putting their owners 100% into large cap US stocks. So, your key words have already been written here: "Total US Stock," "Total International Stock" and so on.

Excellent Post! Thanks for the contribution.
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Old 01-03-2018, 10:33 AM   #19
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I am retired and considering moving away from my financial planner and using index funds for all my investments. Is there a way I can minimize the downside if the market takes a dive? Does anyone have any pointers?
Start by reading this page: https://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit


Really, that's the place to start. Educate yourself.
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Old 01-03-2018, 10:55 AM   #20
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I agree with all of the previous replies. I will just add that boring is good. Pick your allocation comfort level, buy well diversified funds with low fees. Ignore most of the market swings. Rebalance as needed occasionally to maintain allocation. Save the 1% financial advisor fee and put that 1% back in your pocket.
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