Author Topic: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?  (Read 4914 times)

dinkhelpneeded

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401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« on: October 05, 2015, 02:58:31 PM »
Hi,

In January of this year, I changed up my 401K allocations to mostly vanguard index funds, and some % of international and bonds, almost as test to see what my returns would be if I put more money in Vanguard (outside of the 401K).

My exact allocation is attached.
Generally however my allocation is 72% Domestic 17% Bonds, 7% International, 3.6% short term (not sure what short term means).
VHCAX - 42%
VWNAX - 21%
VINIX - 19%
VBTIX 18%

The Problem: I am averaging negative returns of -3 to -4% on this portfolio this year.

Is it the particular Vanguard funds I have the problem? (I chose among Fidelity's limited choices)
Is it more the allocation that is causing this problem?
Is it the market?

How do I trust the 4% safe withdrawl rule works if I am making negative returns, in what is not a particularly recessionary economy?

Thanks!
« Last Edit: October 05, 2015, 03:13:14 PM by dinkhelpneeded »

seattlecyclone

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Re: 401K in Vanguard, YTD -3 to 4%. What am I doing wrong?
« Reply #1 on: October 05, 2015, 03:19:27 PM »
It's mostly the market. VINIX (which tracks the S&P 500) is down 5.5% year to date. VTSAX (total US stock market) is down 5.3%.

Most of us here would recommend you stick to index funds (i.e. not VHCAX or VWNAX) because they have lower cost of ownership.

Some years the market goes up, some years it goes down. Historically, the up years have greatly outnumbered the down years. The 4% rule has worked for the past 100+ years, including the Great Depression. That's of course no guarantee it will work in the future, but it's about as close to a guarantee as we can possibly expect.

ShoulderThingThatGoesUp

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Re: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« Reply #2 on: October 05, 2015, 03:21:02 PM »
You're not doing anything wrong. We're investing for the long term here, what happens next month doesn't really matter. The 4% rule is built to include down years.

Indexer

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Re: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« Reply #3 on: October 05, 2015, 03:39:18 PM »
Markets trend up over time, historically around 10% per year. It is not a straight line.

You won't see 10, 10, 10, 10, etc. or even 8, 12, 6, 14, etc.

You will more likely see -20, 30, -4, 6, 18, etc.

So your returns are pretty standard for 1 year time frame.

Side note: 7% international seems a bit low. Anything less than 10% and what is the point? Anything more than 50% and it normally makes your portfolio more risky. 30-40% tends to be the sweet spot.
« Last Edit: October 05, 2015, 03:41:32 PM by Indexer »

Eric

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Re: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« Reply #4 on: October 05, 2015, 03:49:28 PM »
The only thing you're doing wrong is basing long term investment decisions on short term investment results.  You're in it for the long haul.  Most years will be good.  Some will be bad.  A few will be terrible.  No matter what, it will be in your best interest to choose a plan, stick with it, and ignore the noise.

You should read this if you haven't.  It'll do wonders for your mindset.

http://jlcollinsnh.com/stock-series/

dinkhelpneeded

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Re: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« Reply #5 on: October 05, 2015, 03:50:22 PM »
Thank you! @seattlecyclone @ShoulderThingThatGoesUp @Indexer

Fidelity does not have on the 401k website VTSAX or VINIX atleast not on my current plan. The alternatives I could find were VHCAX and the ones I chose which may have a higher expense ratios but technically still reasonable.

I looked it up and you are right! This link below showed me that fluctuations are not around the mean, its moves around pretty wildly!

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

nereo

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Re: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« Reply #6 on: October 05, 2015, 03:52:30 PM »
adding to the chorus:
despite including one of the worst years in history (2008), the returns over the past decade have been very good (~7.6% annualized).  Look at any particular year and you could have either dropped 37% or gone up 33%.  That's what volatility is.
here's what the returns (with dividends) on the SP500 have looked like:
2014  +13.7%
2013  +32.4%
2012  +16.0%
2011  +2.1%
2010 +15.1%
2009 +26.5%
2008  -37.0%
2007  +5.5%
2006  +15.8%
2005  +4.9%
2004  +10.9%

Jeremy E.

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Re: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« Reply #7 on: October 05, 2015, 03:58:32 PM »
The only thing you're doing wrong is basing long term investment decisions on short term investment results.  You're in it for the long haul.  Most years will be good.  Some will be bad.  A few will be terrible.  No matter what, it will be in your best interest to choose a plan, stick with it, and ignore the noise.

You should read this if you haven't.  It'll do wonders for your mindset.

http://jlcollinsnh.com/stock-series/
+1 to jlcollinsnh stock series

WorkingToBeFIREd

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Re: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« Reply #8 on: October 05, 2015, 07:36:55 PM »
It's a little disheartening during down years, but just think of it as buying shares on sale.  When the prices increase again - although it may take some time - your upside will be even greater on your "sale" shares.

BTW - if your 401k is with Fidelity, do you have access to Spartan index funds?  FSTVX is a great replacement for VTSAX, and you can find like matches to other Vanguard funds that will have very low costs.  Might be able to get a good mix to meet your personal investment policy statement and minimize costs versus holding Vanguard at Fidelity.

Retire-Canada

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Re: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« Reply #9 on: October 06, 2015, 07:03:27 AM »
How do I trust the 4% safe withdrawl rule works if I am making negative returns, in what is not a particularly recessionary economy?

Thanks!

I would read this thread -->>> http://forum.mrmoneymustache.com/investor-alley/stop-worrying-about-the-4-rule/


milesdividendmd

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Re: 401K in Vanguard, YTD -3 to -4%. What am I doing wrong?
« Reply #10 on: October 06, 2015, 07:59:03 PM »
You're beating the market!  Good job!