Author Topic: This Flawed Advice Could Doom Your Retirement  (Read 5654 times)

Seradoc

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This Flawed Advice Could Doom Your Retirement
« on: April 05, 2017, 12:15:15 PM »
An ironically titled article suggests that you avoid broad market index funds because they aren't good enough.  You should instead chase previous returns by buying the fund that they are pushing...

https://www.forbes.com/sites/michaelfoster/2017/04/05/this-flawed-advice-could-doom-your-retirement/#49af922d50b0

Gin1984

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #1 on: April 05, 2017, 12:22:39 PM »
WTF "Well, yes, but keep in mind that if you have any percentage of your portfolio in bonds, youíre not really a passive investor anymore", I can't even follow the logic here.

dandarc

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #2 on: April 05, 2017, 12:25:14 PM »
WTF "Well, yes, but keep in mind that if you have any percentage of your portfolio in bonds, youíre not really a passive investor anymore", I can't even follow the logic here.
Apparently the financial samurai didn't make that up on his/her own.

dandarc

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #3 on: April 05, 2017, 12:35:16 PM »
He's comparing Vanguard Target Retirement Income fund - I think that's a 30/70 fund to the S&P 500?  Seriously?


Gin1984

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #4 on: April 05, 2017, 12:50:37 PM »
WTF "Well, yes, but keep in mind that if you have any percentage of your portfolio in bonds, youíre not really a passive investor anymore", I can't even follow the logic here.
Apparently the financial samurai didn't make that up on his/her own.
I have never seen that on there, but knowing that makes me less likely to read anything he posts.

dandarc

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #5 on: April 05, 2017, 12:51:58 PM »
WTF "Well, yes, but keep in mind that if you have any percentage of your portfolio in bonds, youíre not really a passive investor anymore", I can't even follow the logic here.
Apparently the financial samurai didn't make that up on his/her own.
I have never seen that on there, but knowing that makes me less likely to read anything he posts.
Good call.

Bart1ma3u5

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #6 on: April 05, 2017, 12:58:58 PM »
"Letís say a retiree has a $500,000 nest egg and income needs of $3,000 per month. With GAB, they would get more than that in dividend payments, so theyíll never have to sell a stock. With SPY, the retireeís income from that $500,000 is just $1,083 per month, meaning they will need to sell $1,917 per month of SPY to get the income needed in retirement. In other words, the retiree will need to sell straight into the market downturn. With GAB, one can hold back and wait."

This sounds great! Instead of needing to sell stocks during the downturn they will sell 10% of them for me in order to provide my dividend....

Laura33

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #7 on: April 05, 2017, 01:44:23 PM »
Umm, wow.  This has to be one of the most poorly-reasoned pieces I've ever read.  You don't want to be in index funds because LOOK AT 2008 OMG IF YOU RETIRED THEN YOU'RE FUCKED.  But you must be in 100% stocks because in ALMOST all historical periods they give the best return -- except, of course, for that one pesky year on which your entire dismissal of indexing is based.

Pay no attention to the man behind the curtain. 

Mr Mark

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #8 on: April 05, 2017, 01:45:41 PM »
Facepalm

Do these guys have any conscience what so ever? Is there some kind of financial vampire conspiracy to pump so much Bull shit out there that people just give up?

Maybe vanguard is outperforming them so much it's getting desperate out there in financial snake oil land...

fattest_foot

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #9 on: April 05, 2017, 02:17:07 PM »
WTF "Well, yes, but keep in mind that if you have any percentage of your portfolio in bonds, youíre not really a passive investor anymore", I can't even follow the logic here.

I can only guess that maybe they're saying if you rebalance your allocation?

But yeah, this entire article almost seems like satire. "Even though GAB underperforms a ton, it pays dividends! Oh, and it's trading at a 0.2% discount from normal!"

It's almost like trying to follow the logic of someone who says paying higher fees will be better for your portfolio.

MDM

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #10 on: April 05, 2017, 02:48:38 PM »
Don't be so hard on the writer or GAB.  After all, it didn't do that much worse than the total stock market or the S&P 500 in 2008, and it has done almost as well as those two over the past 10 years, hasn't it?

Why settle for a boring index fund when you could do just a little worse with something else? ;)


checkedoutat39

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #11 on: April 05, 2017, 09:55:11 PM »
Letís say a retiree has a $500,000 nest egg and income needs of $3,000 per month.

Please, tell me more about this asset class that accommodates a 7.2% withdrawal rate.

Gondolin

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #12 on: April 06, 2017, 06:24:23 AM »
^ yep. This is when I stopped reading.

Mr Mark

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #13 on: April 06, 2017, 08:03:25 AM »
Letís say a retiree has a $500,000 nest egg and income needs of $3,000 per month.

Please, tell me more about this asset class that accommodates a 7.2% withdrawal rate.

Lately pretty easy. My patented "PonziFund" is by invitation only and pays a guaranteed 7.2 %. Now there's a 5% front load fee and a similar fee for withdrawals but we'll worth it for our expertise.

DRIP reinvestment is free.

I'd be looking pretty good since 2009. And even with a short sharp dip you'd get your 7.2 dividend. The capital would make it a long time (10 years?)  before the fund (unfortunately due to market forces no one could foresee) would liquidate in an extended bear market. Meanwhile I've made a killing in fees and am sitting in my yacht in Grand Cayman





sol

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #14 on: April 06, 2017, 08:48:42 AM »
Letís say a retiree has a $500,000 nest egg and income needs of $3,000 per month.

Please, tell me more about this asset class that accommodates a 7.2% withdrawal rate.

To be fair, a 7.2% SWR has successfully lasted 20 years in about 60% of historical cases.  For shorter retirement periods, those sorts of high rates are more likely to last than not last.

Mr Mark

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #15 on: April 06, 2017, 02:21:35 PM »
Letís say a retiree has a $500,000 nest egg and income needs of $3,000 per month.

Please, tell me more about this asset class that accommodates a 7.2% withdrawal rate.

To be fair, a 7.2% SWR has successfully lasted 20 years in about 60% of historical cases.  For shorter retirement periods, those sorts of high rates are more likely to last than not last.

PonziFund's first financial  celebrity endorsement

Playing with Fire UK

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #16 on: April 08, 2017, 07:20:41 AM »
Before PonziFund, I was dreading having to think for myself. Then a slick sales person turned up in a flash car and said that they would do all the thinking for me. It was such a relief just to hand over all my money to these experts. And they gave me a free pen! What more could anyone want?!?

Plugra

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #17 on: April 08, 2017, 01:00:43 PM »
Quote
You don't want to be in index funds because LOOK AT 2008 OMG IF YOU RETIRED THEN YOU'RE FUCKED.  But you must be in 100% stocks because in ALMOST all historical periods they give the best return -- except, of course, for that one pesky year on which your entire dismissal of indexing is based.

Funny thing is ... my Dad could have written that article.  That was exactly how he replied when I urged him to stop trading individual stocks and just buy into a few index funds. He's 85 years old and is still trying to beat the market, with about 80-90% of his money invested in individual stock picks that gets from a $300/yr "investment newsletter".  He says his stocks have soared since Nov 2016 - including the penny stocks and startups - proving that sensible asset allocation and index funds don't work, and that his brilliant stock picks are going to yield 5-10% per year indefinitely with "minimum risk".

So it's not just a case of salesmanship. Some people just have no f*****g clue what risk means.

TheGrimSqueaker

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #18 on: April 08, 2017, 05:57:17 PM »
Quote
You don't want to be in index funds because LOOK AT 2008 OMG IF YOU RETIRED THEN YOU'RE FUCKED.  But you must be in 100% stocks because in ALMOST all historical periods they give the best return -- except, of course, for that one pesky year on which your entire dismissal of indexing is based.

Funny thing is ... my Dad could have written that article.  That was exactly how he replied when I urged him to stop trading individual stocks and just buy into a few index funds. He's 85 years old and is still trying to beat the market, with about 80-90% of his money invested in individual stock picks that gets from a $300/yr "investment newsletter".  He says his stocks have soared since Nov 2016 - including the penny stocks and startups - proving that sensible asset allocation and index funds don't work, and that his brilliant stock picks are going to yield 5-10% per year indefinitely with "minimum risk".

So it's not just a case of salesmanship. Some people just have no f*****g clue what risk means.

"Minimum risk" is a phrase people often use when they either can't see the risks or don't understand them. Some investments generally are low risk-- interest bearing savings accounts backed by government insurance come to mind. But when I see those terms applied to special derivatives, commodities futures, or stocks, my first instinct is to engage the investor in more discussion to determine whether their level of sophistication and loss tolerance matches the risk they're taking.

Plugra

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Re: This Flawed Advice Could Doom Your Retirement
« Reply #19 on: April 09, 2017, 04:54:33 PM »
Okay I looked up this GAB fund.  Its performance seems to roughly overlap the SP500, yet it also reports a 10% dividend.  Does anyone know how such funds operate?  I assume it's not just holding a basket of stocks because then the div yield would be too low. Is it some kind of active scheme that generates an income stream through derivatives or contracts involving the underlying stocks ... (?)