What to invest in?

[jo552006]

I am helping a friend who is recently retired invest their own money.  My goal is to use the 4% rule and enable them to withdraw 4% (or a little less) every year indefinitely.  They've transferred their 401k to a vanguard IRA, but I am not sure what to tell them to PUT their money in, and right now it is just sitting.

For myself, being young I've just stuck all my funds into the vanguard 2050 retirement* or whatever the furthest out one was, since it's basically all stocks up front anyway.  I might change around my funds later when I know more about investing, but for now, it's a hands-off don't worry about it way to know my money is working for me.

For my friend I was thinking some combination of the following maybe?
VTSAX
VTIAX
VBTLX
VTABX

(Or possibly throwing their lot in with the 2050 retirement fund or something)

In short, there's a TON of information and strategies, and I'm just looking for some sound recommendations from the forum providing a possible actionable plan, in some form such as XX% VTSAX, XX%VTIAX.  Information regarding why would be helpful.  In short, we always talk about the 4% rule, and I don't know how to actually IMPLEMENT it once the money is there.

*Side note, if the 2050 retirement fund is a horrible options for me that'd be good to know as well.

[Huskie87]

Depends on risk tolerance, but this should be a starting point.

VOO - 35%
VB - 5%
VEU - 10%
VWO - 5%
VNQ - 5%
VCIT - 25%
VGIT - 10%
BSV - 5%

Through dividends, interest payments and cash generated through an annual re-balance, you'll be able to produce the required 4%.

[matchewed]

Why not have your friend go over these two things then you two can sit down and work together on it?

http://www.bogleheads.org/wiki/Investment_policy_statement
http://jlcollinsnh.com/stock-series/

Anybody who gives specific advice is just choosing for your friend and does not have a window into their risk tolerance and details of their financial situation.

[Huskie87]

*also, you can do much worse than a 2050 target date fund.  The key for those is that you don't want to continue using them as you get near (within 5 years) and enter retirement.

[AlmstRtrd]

It sounds to me like you are newish to investing so you and your friend should really take your time to do some reading up. This site is a great source. The Bogleheads forum is also good. Also check out the Permanent Portfolio forum. That portfolio is not particularly popular around here but it's good to get different perspectives.

The bottom line is that any strategy that is good today will also be good a year from now. I think everyone on here would echo that sentiment.

Your friend's investment needs as a retiree are likely to be way different than yours (just guessing that you are young based on that 2050 target fund).

While backtesting is only valuable up to a point, this site provides lots of great visuals:

https://portfoliocharts.com/

Tyler goes into both safe and sustainable withdrawal rates, and also shows the best and worst year for all of the portfolios he has data for.

As a young investor you are likely to have way more risk tolerance and market dips can also be seen as buying opportunities. A retiree should really understand sequence of returns risk.

Just take your time and don't rush into anything... especially with someone else's money!

[KarefulKactus15]

I would be a little hesitant to help someone with their life savings.   I would be much more likely to point them to some of the resources already mentioned.   And I dont mind answering specific questions, about my beliefs of investing or how I do things.

But I wouldnt want to put myself in the situation of someones financial adviser.

[jo552006]

Thanks to everybody for their responses!

I am thinking that a few clarifications and more questions would be immensely helpful.

With regards to helping my friend choose their risk tolerance.  I am OKAY assuming that risk and acting as their financial advisor.  Everybody involved understands the risks of that decision and also knows that I am coming at this from the same place as I would with my money.  Though I completely understand why people would caution me against this.  As most of you noted, I am new to investing and don't understand the market risks, and different investment options/strategies, and playing with OTHER people's money could cause a lot of issues.

I do need to get educated, and I'm willing to invest time/energy into doing so.  My plan is as follows: learn about different investment options/strategies, and come up with a work-able plan that should sustain my friend's long term needs.  Present plan here (or perhaps refine plan here) talk to Vanguard financial advisor if available with plan before having my friend invest.  I am very much hoping we're talking a week or two of research, not months.

In the meantime, is there a safe-ish location to tell my friend to put their assets into while I research?  I'd like to put the little green men to work doing SOMETHING rather than sitting doing nothing, especially if it takes me a while to research.  Perhaps 80% US bond, and 20% international Bond market?  I will of course research all suggestions before acting upon them.

With regards to the 4% rule.  My wife and I have been saving quite successfully for some time now.  Since we've just been saving and reducing recurring expenses, I wasn't so concerned with the nuts and bolts of HOW to get 4% a year indefinitely once we have a large enough bankroll.  I'm somewhat surprised we don't have a standard "Do this" for the investment part of our strategy like we have for our saving part.

[jo552006]

Specific questions:

1.  Does this forum have a canned response for "Investing and withdrawing using the 4% rule?"  My friend would follow the same path a mustachian would, in the really bad years, tighten the belt and/or earn income so that you're not selling stocks when they're low, in the good years spend 4%, and let the extra make the stash bigger. In short, while *technically* a young retired mustachian has a higher risk tolerance because they can always go back to work, if you assume they don't WANT to, that's how my friend will act.

2. For now, is there a recommendation for where to put money rather than a money market account?  Safe investment suggestion so the money isn't sitting idle while I research would be good.  I'd love it if the "safe" investment made ~3% give or take, but I don't know enough to say if that's a reasonable goal for a hands off safe investment.

3. Do we have a thread or list of "read this to learn about investing?"  I feel like I'm past the "don't pull out your money in bad times" knowledge level and even past the Identify investment objectives/risk tolerance, but I'm nowhere near to being able to Identify asset classes, and target asset allocation, or rebalancing thresholds.

[BarkyardBQ]

Specific questions:

1.  Does this forum have a canned response for "Investing and withdrawing using the 4% rule?"  My friend would follow the same path a mustachian would, in the really bad years, tighten the belt and/or earn income so that you're not selling stocks when they're low, in the good years spend 4%, and let the extra make the stash bigger. In short, while *technically* a young retired mustachian has a higher risk tolerance because they can always go back to work, if you assume they don't WANT to, that's how my friend will act.

2. For now, is there a recommendation for where to put money rather than a money market account?  Safe investment suggestion so the money isn't sitting idle while I research would be good.  I'd love it if the "safe" investment made ~3% give or take, but I don't know enough to say if that's a reasonable goal for a hands off safe investment.

3. Do we have a thread or list of "read this to learn about investing?"  I feel like I'm past the "don't pull out your money in bad times" knowledge level and even past the Identify investment objectives/risk tolerance, but I'm nowhere near to being able to Identify asset classes, and target asset allocation, or rebalancing thresholds.

http://jlcollinsnh.com/stock-series/
http://www.madfientist.com/safe-withdrawal-rate/
https://livingafi.com/2014/05/09/drawdown-part-1-the-basics/

[Radagast]

I just said this in another thread: The Four Pillars of Investing is my first recommendation; it has lots of depth and history in addition to asset allocation. The Bogleheads Guide to Investing is also good because it covers a broad range of topics that are relatively basic but you might not otherwise think about.

[AlmstRtrd]

2. For now, is there a recommendation for where to put money rather than a money market account?  Safe investment suggestion so the money isn't sitting idle while I research would be good.  I'd love it if the "safe" investment made ~3% give or take, but I don't know enough to say if that's a reasonable goal for a hands off safe investment.

That's very tough to find right now. 30-year treasuries are only yielding about 2.6%. But inflation is super low at the moment so your friend's money isn't losing every day that it sits idle (my take). You and your friend should take your time. And, yes, it can take months or years to learn this stuff. Most (all?) of us on here are still learning. Tax efficiency in the withdrawal phase is super important... understanding different kinds of accounts, RMDs on tax-deferred accounts, what you friend's SS earnings will be and when he/she will take them are all important.

[Tyler]

Hi Jo552006.

I admire you for helping your friend set this up.  It's a lot of responsibility, and a big task for someone also new to investing.

For a "traditionally aged" retiree who doesn't fully understand investing, I'd suggest looking at the Vanguard Wellesley Income Fund (VWIAX).  While I do not normally recommend actively managed funds, it has been around forever (since 1970), has good management, an excellent track record, and low fees.  For those reasons it's one of the most popular retirement funds on the market with more than $40bn under management. 

If you want to do something similar with a passive strategy, VWIAX consists of 40% stocks and 60% bonds.  So you could purchase a total stock market fund and total bond market fund in those proportions and be in decent shape while you continue to learn more.  Those funds will also form the foundation of most any other portfolio you ultimately choose.

Because you're talking about an IRA there are no tax issues with adjustments down the road, so finding a safe place to invest while you choose the best long-term plan is a good idea.  Just be very careful if you also touch any taxable accounts, as the decisions you make in that case will have measurable consequences if you change your mind later.

[AlmstRtrd]

For a "traditionally aged" retiree who doesn't fully understand investing, I'd suggest looking at the Vanguard Wellesley Income Fund (VWIAX). 

I often think that when I start to lose it mentally (that is, if I even realize it!), I might just throw everything into VWIAX so that my younger wife doesn't have to understand too much about investing during her old age. I do wonder what kind of magic they would be able to work in a rising-rate environment but their track record so far is terrific. I also have reservations about funds that are managed by humans, especially over long periods when the humans making the decisions are bound to change.

[Heckler]

This was my "go to" list of reading. I did one year of prep work to be confident and manage my own future (after 15 years of being ripped off by various advisors)

http://canadiancouchpotato.com/model-portfolios-2/

https://www.bogleheads.org/wiki/Getting_started

http://www.finiki.org/wiki/Main_Page