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#1
12-26-2006, 12:06 PM
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where to stick 50k for 10 years
i dont want to put this money into my IRA or anything, but i also don't want it sitting around doing nothing....whats my best plan? i want maximum growth potential, however as it gets closer to the 10th year i want it to chill out...i was thinking one of the vanguard (or any other investment firms) life cycle retirement funds would be good, except i would choose a 2017 'retirement' date.....thoughts/advice/idiotic one lines?
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#2
12-26-2006, 12:28 PM
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Re: where to stick 50k for 10 years
Effectively, the problem is you are trying to maximize growth, but not get bit by variance. The index fund is most likely to offer the highest growth rate, but also comes with the highest variance. That variance means that it could drop 30% the year before you want to cash out.
Normally I'd say just get an index fund and as you get to the fifth year start cycling some percentage into a bond fund. This creates your own "lifecycle" fund. The 2017 fund might be way too heavy into bonds already, and you'd be giving up too much growth. Doing it yourself keeps all the options open, if you decide two years from now that you want to buy a house in year five, you can accelerate your shift to a bond fund. One great thing about most index funds is they tend to be very tax efficient. Not a lot of turnover means not a lot of taxes while you hold it. I don't need to rehash all the reasons why index funds are better than most actively managed mutual funds.
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#3
12-26-2006, 12:48 PM
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Re: where to stick 50k for 10 years
[ QUOTE ]
idiotic one lines? [/ QUOTE ] Did you rob a bank to get this 50k? -DeathDonkey
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#4
12-26-2006, 12:54 PM
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Re: where to stick 50k for 10 years
[ QUOTE ]
Effectively, the problem is you are trying to maximize growth, but not get bit by variance. The index fund is most likely to offer the highest growth rate, but also comes with the highest variance. That variance means that it could drop 30% the year before you want to cash out. Normally I'd say just get an index fund and as you get to the fifth year start cycling some percentage into a bond fund. This creates your own "lifecycle" fund. The 2017 fund might be way too heavy into bonds already, and you'd be giving up too much growth. Doing it yourself keeps all the options open, if you decide two years from now that you want to buy a house in year five, you can accelerate your shift to a bond fund. One great thing about most index funds is they tend to be very tax efficient. Not a lot of turnover means not a lot of taxes while you hold it. I don't need to rehash all the reasons why index funds are better than most actively managed mutual funds. [/ QUOTE ] what about these?
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#6
12-26-2006, 02:27 PM
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Re: where to stick 50k for 10 years
[ QUOTE ]
what about these? [/ QUOTE ] ETFs are fine, if they are well diversified. When I recommend index funds, it's because they cover a broad portion of the market. I usually recommend Vanguard's Total Stock Market Index, and maybe an international index fund to reduce your risk of the U.S. dollar declining. ETF's that cover the same indexes may have some minor cost advantages (I'm not an expert on that part). But they are basically the same thing so it really doesn't matter much. But if you are looking at a more focused ETF like Vanguard's VDC ETF , you are basically betting on a certain segment (consumer staples) to outperform the rest of the market. I can't give you any accurate guidance on what segments will outperform in the future (and I don't think anyone else can either), so my advice is to stick to ETFs or funds that cover broad market indexes. That eliminates the risk you'll underperform the market, at the cost of ensuring you won't outperform.
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#7
12-26-2006, 03:37 PM
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Re: where to stick 50k for 10 years
75% VTI
25% TLT Low fees are everything don't get suckered in by Mutual funds that charge you 1% or 2% or more per year.....
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#8
12-26-2006, 09:39 PM
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Re: where to stick 50k for 10 years
I agree with DesertCat, but we also should consider what the money is needed for after 10 years, your investing experience, the % of your entire pension/portfolio this money represents, and your appetite for risk.
If it's to pay off a mortgage then you should take less risk than if it is just spare 'venture capital' that you have aside from your core portfolio/investing arrangement. If so, then you can take higher risks. I believe that many people tend to think they can tolerate a higher risk than they actually are able to stomach. 10 years is a relatively long enough time to ride out most bumps, but I would always take the more cautious road. If you haven't already, I recommend you take the somewhat lengthy questionnaire on ifa.com if this seems below your level of knowledge, then you probably already know what to do.
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#9
12-27-2006, 03:12 AM
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Re: where to stick 50k for 10 years
[ QUOTE ]
Effectively, the problem is you are trying to maximize growth, but not get bit by variance. The index fund is most likely to offer the highest growth rate, but also comes with the highest variance. That variance means that it could drop 30% the year before you want to cash out. Normally I'd say just get an index fund and as you get to the fifth year start cycling some percentage into a bond fund. This creates your own "lifecycle" fund. The 2017 fund might be way too heavy into bonds already, and you'd be giving up too much growth. Doing it yourself keeps all the options open, if you decide two years from now that you want to buy a house in year five, you can accelerate your shift to a bond fund. One great thing about most index funds is they tend to be very tax efficient. Not a lot of turnover means not a lot of taxes while you hold it. I don't need to rehash all the reasons why index funds are better than most actively managed mutual funds. [/ QUOTE ] Instead of bond funds, you're better off with short-maturity bonds themselves. If rates go up you can still lose money in bond funds. If you buy the bonds outright, you're assured of at least 100% of the investment back.
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#10
12-27-2006, 07:54 PM
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Re: where to stick 50k for 10 years
For a long period, you can still be very risk-averse and still afford to invest in index funds.
For example, the worst 10-year performance of the S&P 500 has been -10%, or -1% annualized. The best 10-year performance has been a 515% return, or 20% annualized. The average 10-year return has been a 215% gain. In fact, since 1927, there have only been 3 10-year periods out of 71 with a negative return. And all 3 of those came from starting in 1927, 1928, or 1929, right before the great depression.
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