The only risk tolerance that makes sense to me is about how flexible you might be to adjust your expenses if necessary. That's actually something some of us have already experienced during the accumulation phase, and can have some confidence in how we'd respond.
I am 53 and retired at 50. 1 thing I did do to retire early was to get out of the 401K and IRA programs. Bought rental real-estate and I am now a Limited Partner in about 3500+ units. I do not work.
I only contribute 5% to get full company match, that’s it. The 401K plan is designed for you to work until you are about dead. Also, the government does not have their hands on it yet either.
My wife and I live off of our 401K. We don't work. I recommend highly to everyone to build your 401K or Roth IRA's as an alternate revenue stream in retirement to your Social Security. An observation on 401K's is when it gets over 300K it starts to accelerate. When you get over 500K it can really accelerate as the stock market grows.
Finally, someone discussing education to affect risk tolerance!!!! Bravo!!! I know government employees that had their entire portfolio in governments securities for their entire career because they heard it was safe. They retired with a few hundred thousand instead of a few million.
Yeah, some of this behavior blows my mind. There will always be employees who can't/don't act upon the basic education that's commonly provided by their plan recordkeeper. They're not motivated to get free/paid help for something as important as investing for their retirement years. These days, planners are available in all price ranges. There are free sample allocations readily available. OTOH, it doesn't help that there are hidden fees and employers use plans as profit centers.
@@i-postm4943 Now, there’s a lot of info out there, but 20 or 30 years ago it was very minimal. Basically, they handed you a brochure and it did have a some basic information, but not anywhere near enough to make life changing decisions. Frankly, I was lucky and talked to a former stockbroker, otherwise I’d be in really, really bad shape in my retirement.
Agreed. Frankly, I just got lucky. I went 100% sp500 mutual fund years ago when I was "young" and had a high risk tolerance. Fortunately, I forgot about my 401k for like 20 years and was just pumping 10% of my incoming there automatically. I was just paying attention to my job. One day I took a serious look and was like "Holy crap. Where did all this money come from." If I had played it "safe" and put some in bonds like their little pie chart recommended I would have half as much money. Look, the sp500 is already spread out through 500 companies and if one company does poorly they kick its ass out and put in a new one. It's an all star team. It's not actually that complicated that its a good diversified consistent place to make money. Big drops seldom last longer than 5 years and like 10 years at the most. Just ride them out, even in retirement.
@@i-postm4943 Nowadays, there is a plethora of information on the web and the plan operators and HR do a much, much better job, but back in the day all you got was a brochure. I asked other employees and relatives about what I should do and they were of little help because they were from the age of every company had a pension. I was lucky to find an employee who had been in finance and he put me onto the S&P 500.
@@matthewkeller2132 I also went 100% S&P 500 and have been in for 34 years. There were years I never looked at the balance because it was in a bear market.
Nice reorientation about risk tolerance, placing it in a broader context of normalized risk levels amongst investment types and classes, then planning and assessing courses of returns and losses based upon what is reasonably expected. For someone like me who avoids bonds because the investment logic eludes me, this helps me keep a more constructive, inquisitive attitude.
Your comments about risk tolerance are very much in the realm of "Michael Kitces". Why don't you acknowledge this in the video? He has talked much more extensively than ANYONE in the financial industry.
@@raymiller764 You have emergency money already set aside BEFORE you retire. Have it in a HYSA or laddered CDs and use this instead of drawing down your stocks during a prolonged downturn.
@@raymiller764 Withdraw what you need to live off of and leave the rest in there. You deposited using dollar cost averaging and you withdraw using dollar cost averaging.
The expense ratio for the Vanguard 500 Index Fund (VFIAX) is 0.04% as of April 26, 2024. The Admiral shares version of the fund has a minimum investment of $10,000, while the standard version has a minimum investment of $3,000. Vanguard also charges account service fees that range from $15 to $25 per year, depending on the type of account. For individual 401(k) and individual Roth 401(k) plans, Vanguard charges a $20 fee for each mutual fund in each account. However, this fee is waived if at least one participant in the plan has at least $50,000 in qualifying Vanguard assets. ---> you need to either change brokerages or change funds, you are getting ripped off
vfiax also includes a 1.32% dividend which makes up for the expense ratio with a net yield of 1.28% even if the stocks didn't grow you would still get that interest
@phoenixtropicalsvid You're being "ripped off" by all of them - Fidelity, Schwab, etc - 'cuz if the fees are not stated, you can bet they're baked in (unseen). Just like the rest of them, Vanguard has to keep their lights on and pay their employees a fair wage, no?
@@i-postm4943 vfiax also includes a 1.32% dividend which makes up for the expense ratio of 0.04 so you get a net yield of 1.28%, so even if the stocks didn't grow you would still get that interest
The only risk tolerance that makes sense to me is about how flexible you might be to adjust your expenses if necessary. That's actually something some of us have already experienced during the accumulation phase, and can have some confidence in how we'd respond.
I am 53 and retired at 50. 1 thing I did do to retire early was to get out of the 401K and IRA programs. Bought rental real-estate and I am now a Limited Partner in about 3500+ units. I do not work.
I only contribute 5% to get full company match, that’s it. The 401K plan is designed for you to work until you are about dead. Also, the government does not have their hands on it yet either.
My wife and I live off of our 401K. We don't work. I recommend highly to everyone to build your 401K or Roth IRA's as an alternate revenue stream in retirement to your Social Security. An observation on 401K's is when it gets over 300K it starts to accelerate. When you get over 500K it can really accelerate as the stock market grows.
If I may ask, as in withdrew all of the money from the 401K and IRA programs? If so, what was your strategy behind that decision? Thank you.
well i just took advice from Jennife Mackimm Wesley
I agree the mrkt is manipulated that’s why I never contribute above 5% I try to enjoy the ride while I invest.
Finally, someone discussing education to affect risk tolerance!!!! Bravo!!! I know government employees that had their entire portfolio in governments securities for their entire career because they heard it was safe. They retired with a few hundred thousand instead of a few million.
Yeah, some of this behavior blows my mind.
There will always be employees who can't/don't act upon the basic education that's commonly provided by their plan recordkeeper. They're not motivated to get free/paid help for something as important as investing for their retirement years. These days, planners are available in all price ranges. There are free sample allocations readily available.
OTOH, it doesn't help that there are hidden fees and employers use plans as profit centers.
@@i-postm4943 Now, there’s a lot of info out there, but 20 or 30 years ago it was very minimal. Basically, they handed you a brochure and it did have a some basic information, but not anywhere near enough to make life changing decisions. Frankly, I was lucky and talked to a former stockbroker, otherwise I’d be in really, really bad shape in my retirement.
Agreed. Frankly, I just got lucky. I went 100% sp500 mutual fund years ago when I was "young" and had a high risk tolerance. Fortunately, I forgot about my 401k for like 20 years and was just pumping 10% of my incoming there automatically. I was just paying attention to my job. One day I took a serious look and was like "Holy crap. Where did all this money come from." If I had played it "safe" and put some in bonds like their little pie chart recommended I would have half as much money. Look, the sp500 is already spread out through 500 companies and if one company does poorly they kick its ass out and put in a new one. It's an all star team. It's not actually that complicated that its a good diversified consistent place to make money. Big drops seldom last longer than 5 years and like 10 years at the most. Just ride them out, even in retirement.
@@i-postm4943 Nowadays, there is a plethora of information on the web and the plan operators and HR do a much, much better job, but back in the day all you got was a brochure. I asked other employees and relatives about what I should do and they were of little help because they were from the age of every company had a pension. I was lucky to find an employee who had been in finance and he put me onto the S&P 500.
@@matthewkeller2132 I also went 100% S&P 500 and have been in for 34 years. There were years I never looked at the balance because it was in a bear market.
Excellent description. I just call this buckets. Love your channel
Good discussion and explanation of the concepts Eric. Very useful information. Keep up the great content. Larry, Central Valley, Ca.
Nice reorientation about risk tolerance, placing it in a broader context of normalized risk levels amongst investment types and classes, then planning and assessing courses of returns and losses based upon what is reasonably expected. For someone like me who avoids bonds because the investment logic eludes me, this helps me keep a more constructive, inquisitive attitude.
Excellent advice.
I have always hated the "risk tolerance " questions
Investment advisors have to push it, otherwise all their clients would sue them each time stock prices drop.
Your comments about risk tolerance are very much in the realm of "Michael Kitces". Why don't you acknowledge this in the video? He has talked much more extensively than ANYONE in the financial industry.
All I see here is evidence to go 100% sp500. Just don't unload during down turns. Draw it out steady just like you invested it.
how do you do this during a 2 year downturn if you are 100% in?
@@raymiller764 You have emergency money already set aside BEFORE you retire. Have it in a HYSA or laddered CDs and use this instead of drawing down your stocks during a prolonged downturn.
@@raymiller764 Withdraw what you need to live off of and leave the rest in there. You deposited using dollar cost averaging and you withdraw using dollar cost averaging.
@@glasshalffull2930 then it isnt 100% stocks
@@raymiller764 Your 401K or similar is 100% stock and your emergency fund is something that is not as volatile.
Most money is lost to fees. If you are paying 1-2% for total assets under management you are talking big money off the top.
The expense ratio for the Vanguard 500 Index Fund (VFIAX) is 0.04% as of April 26, 2024. The Admiral shares version of the fund has a minimum investment of $10,000, while the standard version has a minimum investment of $3,000. Vanguard also charges account service fees that range from $15 to $25 per year, depending on the type of account. For individual 401(k) and individual Roth 401(k) plans, Vanguard charges a $20 fee for each mutual fund in each account. However, this fee is waived if at least one participant in the plan has at least $50,000 in qualifying Vanguard assets. ---> you need to either change brokerages or change funds, you are getting ripped off
vfiax also includes a 1.32% dividend which makes up for the expense ratio with a net yield of 1.28% even if the stocks didn't grow you would still get that interest
@phoenixtropicalsvid You're being "ripped off" by all of them - Fidelity, Schwab, etc - 'cuz if the fees are not stated, you can bet they're baked in (unseen). Just like the rest of them, Vanguard has to keep their lights on and pay their employees a fair wage, no?
@@i-postm4943 vfiax also includes a 1.32% dividend which makes up for the expense ratio of 0.04 so you get a net yield of 1.28%, so even if the stocks didn't grow you would still get that interest