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54

Mathematically it seems like the expected rate of return, whatever that might be, is the same for both. An aggressive strategy is higher risk and higher reward. A conservative strategy is lower risk and lower reward. That is not true. Roughly, the mathematical analogue of "higher risk and higher reward" is "higher standard deviation and higher mean". In ...


29

Holding pure cash is a problem for 401K companies because they would then have follow banking rules because they would be holding your cash on their balance sheets. They don't want to be in that business. Instead, they should offer at least one option as a cash equivalent - a money market fund. This way the money is held by the fund, not by 401K ...


24

TL;DR: Cash is king — and bonds are not cash. I've written about this in this other answer. Here's part of it: [...] inflation aside, why do we want our "equivalent to cash" position to be relatively liquid and principal-protected? When it comes time to rebalance your portfolio after disastrous equity and/or bond returns, you've got in ...


22

Index funds may invest either in index components directly or in other instruments (like ETFs, index options, futures, etc.) which are highly correlated with the index. The specific fund prospectus or description on any decent financial site should contain these details. Index funds are not actively managed, but that does not mean they aren't managed at ...


18

Why not figure out the % composition of the index and invest in the participating securities directly? This isn't really practical. Two indices I use follow the Russell 2000 and the S&P 500 Those two indices represent 2500 stocks. A $4 brokerage commission per trade would mean that it would cost me $10,000 in transaction fees to buy a position in ...


18

I think most financial planners or advisors would allocate zero to a gold-only fund. That's probably the mainstream view. Metals investments have a lot of issues, more elaboration here: What would be the signs of a bubble in silver? Also consider that metals (and commodities, despite a recent drop) are on a big run-up and lots of random people are saying ...


16

In a cap-weighted fund, the fund itself isn't buying or selling at all (except to support redemptions or purchases of the fund). As the value of a stock in the index goes up, then its value in the fund goes up naturally. This is the advantage of a cap-weighted fund, that it doesn't have to trade (buy and sell), it just sits on the stocks. That makes a cap-...


16

As others have said, this opinion is predicated on an assumption that early in your life you have no need to actually USE the money, so you are able to take advantage of compounding interest (because the money is going to be there for many many years) and you are far more tolerant of loss (because you can simply wait for the markets to recover). This is ...


14

Having cash and bonds in your portfolio isn't just about balancing out the risk and volatility inherent in equities. Consider: If you are 100% invested in equities and the market declines by 30%, you'll be hard pressed to come up with additional money to "buy low". You'll miss out on the rebalancing bonus. But, if you make a point of keeping some portion of ...


13

See how the fund shows the % net? It simply means that $100 in assets is actually $150 in Bonds and Other, with $50 borrowed to do so. As of Aug 2015, this anomaly appears to be gone, they are now net long bonds and cash positions.


12

A lot of people (and it's common advice) only have x% of their portfolio invested at any given time. Depending on your tolerance for risk, you might leave 10-30% in cash/money market, for example. Also, if you're still earning and saving, that amount of cash will grow every month as you continue to grow your nest egg. That's where the money comes from.


10

Any fee based financial adviser should be able to help you. I don't think you need to worry about finding a 401K specific adviser. I'm not even sure that's a thing. A good place to start is the National Association of Personal Financial Advisors. The reason I specifically mentioned a fee based adviser is that the free ones are working on sales commissions, ...


10

Let the man be. If you've tried again and again to convince him, and haven't, maybe he doesn't want to be convinced. It's his money, and he has every right to manage it as he sees fit. You can advise him, but its his call whether he accepts your advice or not, and for what reasons. And suppose you push and push and it gets through? Now either he has more ...


10

The short answer: zero. dg99's answer gives some good reasons why. You will basically never be able to achieve diversification with individual stocks that is anywhere close to what you can get with mutual funds. Owning individual stocks exposes you to much greater risk in that random one-off events that happen to affect one of the companies you own can ...


10

A standard 2050 lifecycle fund allocation like LifePath 2050 index funds will generally have a very tiny allocation to cash (~1% in this example) because as you mention the target date is far out and cash is not a long term investment. However, for LifePath dynamic funds Allocations are flexible to capture opportunities in changing markets. If you look ...


9

It depends on what your goals are, your age, how much debt you have, etc. Assuming -- and we all know what happens when you assume -- that your financial life is otherwise in order, the 5% to 10% range you're talking about isn't overinvesting. You won't have a lot of company; most people don't own any. One comment on this part: I have some gold (GLD), ...


9

(Leaving aside the question of why should you try and convince him...) I don't know about a very convincing "tl;dr" online resource, but two books in particular convinced me that active management is generally foolish, but staying out of the markets is also foolish. They are: The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns ...


9

The question is asking for a European equivalent of the so-called "Couch Potato" portfolio. "Couch Potato" portfolio is defined by the two URLs provided in question as, A 50:50 allocation of assets between a long position in an stock fund; and a long position in a fixed-income index fund. Holding these two long positions for five years at a minimum, and ...


9

Consider this: You're 20, the year is 2008, and your $15K savings are slashed in half because S&P500 crashed. In 50 years, when you need to go to groceries with that money, the S&P500 has gained 2000% since. Now consider you're 70, the year is 2008, and your $15K savings are slashed in half because S&P500 crashed. But now, you're going to the ...


9

Your employer decides what options you have in the 401k. You can talk to your HR about that. There are requirements for diversity of various types of investments, money-market funds is being one of them. That is the investment account equivalent of cash. While it is not really cash but rather short term bonds - the term is generally very short and the risk ...


8

Index funds are good for diversifying risk. For people who don't have a large sum of money to invest, holding all the different types of stocks in the index is both very expensive and not practical because you incur too many transaction costs. For an index funds, the main advantages are that costs are pooled, and investors can invest a smaller amount that ...


8

If you are comfortable with the risk etc, then the main thing to worry about is diversity. For some folks, picking stocks is beyond them, or they have no interest in it. But if it's working for you, and you want to keep doing it, more power to you. If you are comfortable with the risk, you could just as well have ALL your equity position in individual ...


8

It's likely that the main reason is the additional currency risk for non-USD investments. A wider diversification in general lowers risk, but that has to be balanced by the risk incurred when investing abroad. This implies that the key factor isn't so much the country of residence, but the currency of the listing. Euro funds can invest across the whole ...


7

My personal gold/metals target is 5.0% of my retirement portfolio. Right now I'm underweight because of the run up in gold/metals prices. (I haven't been selling, but as I add to retirement accounts, I haven't been buying gold so it is going below the 5% mark.) I arrived at this number after reading a lot of different sample portfolio allocations, and some ...


7

That's a lot of manual checking-in to see if everything is performing the way you "want". Not to insult your intelligence, but that is not your job, and doing that on a monthly basis is going to eat a lot of time. Plus, most 401(k) programs have lockout periods wherein changes can't be made without incurring additional fees (related to distributions, etc). ...


7

I think you may be drawing the wrong conclusion about why you put what type of investment in a taxable vs. tax-advantaged account. It is not so much about risk, but type of return. If you're investing both tax-advantaged and taxable accounts, you can benefit by putting more tax-inefficient investments inside your tax-advantaged accounts. Some aggressive ...


7

There are a few main economic reasons given why investors show a strong home bias: Added currency risk which MSalters explains very well in another answer Local investors may have superior information about local economies and be looking to profit from it Tax burden on foreign investment can be larger in some countries A number of countries limit foreign ...


6

There are some index funds out there like this - generally they are called "equal weight" funds. For example, the Rydex S&P Equal-Weight ETF. Rydex also has several other equal weight sector funds


6

The main restrictions you see with IRA's involve contributions, and not the actual investments themselves. I would be indifferent to having a single investment across multiple accounts. It might be a bit trickier to manage, especially if your strategy involves some specific asset allocation. Other than account management though, there's no big issue.


6

0.13% is a pretty low fee. PTTRX expenses are 0.45%, VINIX expenses are 0.04%. So based on your allocation, you end up with at least 0.08%. While lower than 0.13%, don't know if it is worth the trouble (and potentially fees) of monthly re-balancing.


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