Our financial system is crumbling this week.

[Michael]

I'll also add I'm not a professional so YMMV.

[Freed Roger]

Aah. Yea-no historic correlation. I will revamp.

Good. With a 1-2 time frame you should be looking at money markets and/or CDs. The performance isn't great, but that's what you should do.

A caveat to the chart- housing is hard to affix a national # to as busts and slumps tend to range a lot by region and even suburb vs more urban. . 2008 obviously hit the FL AZ NV type areas harder than Stl. For some reason, I think STL in general will take a hit next time.

Sure, but STL could be even worse. Don't gamble with your future.

All right all right. .......just as soon as the tech stocks rebound I am OUT.

[Swirls]

I'd be interested in seeing these articles if you can find them.

I can't, which is annoying. That said, ignore those talking heads. Those news shows are entertainment, not educational.

If you have a large sum of money that you won't need in the next 10 years I highly suggest you setup a Roth IRA. It's easy to do on low cost index sites sites like Vanguard or Schwab. If your income is high enough that it's outside the contribution limits consider a backdoor Roth IRA.

I assume this large chunk of money is in a taxable account, so I suggest you try and be tax efficient with your asset allocation. That means if you have tax deferred account like an IRA or 401k you'll want to keep your low cost bond index funds there. In the taxable account it's better to have your low cost equity index funds.

As for what to buy, I'll reiterate I basically buy 3 types of low cost funds:

1) Total Market US Equities Index Fund
2) Total Market International Equities Index Fund
3) Total US Bonds Index Fund (I have a small amount of an international bond fund as well, but I don't think it's important to own them)

You can find a list of low cost funds like these by the major brokers here.

With this strategy I pay less than 10 basis points in fees a year, I'm effectively diversified and I kick the butt of actively managed mutual funds/portfolios. It's also low stress and easy to do. With investing, fees and taxes are the silent killer and the strategy above really minimizes those problems.

I don't pay extra out of my 401k for someone to actively manage it. [expletive] that. I stay reasonably close to my target allocation mix - I'm currently 93%/7% for my ratio. Where I buck the trend is that I currently have a huge portion of my 401k invested in company stock. Like 25-30% last I checked. It is very risky, yes, but my company's stock has also been steadily growing at a 15-20% clip for the past several years. Once that slows down I will absolutely switch and move it over to other funds. I keep about 20% in a Target Retirement fund and the rest in various mutual funds.

The biggest silent killer, to me, are expense ratios. Oftentimes they're a larger percentage than the "active management" fees/taxes that you are charged for someone else to look over your portfolio. Which means you're getting hit twice.

Taxes and fees you're at least aware of (theoretically), so you know out of the gate you're going to pay XXX per transaction or approximately .5% of your total investment or whatever. But nobody ever talks about the expense ratios. That's literally coming directly out of your daily profit. If you're earning 5%, but all of your mutual funds come with a 1% expense ratio and you're paying someone 0.5% to manage your investment, you're actually only earning 3.5% - not the 4.5% that you think you are earning.

In New York we used Aon Hewitt after we got bought out (we previously used T. Rowe Price), and those expense ratios were often 1.5-2%. It was insane. In South Carolina we used Merrill Lynch, which were more palatable, but still ridiculously high at 0.5-1% overall.

I'm very fortunate with my 401k through Vanguard where our expense ratios are incredibly low for the most part (I would say at least 75% of our funds have expense ratios of anywhere from 0.05% to 0.25%). But if I'm researching two very similarly performing funds and trying to decide which one I want to put 10% of my investment into, and one has a 0.1% expense ratio and one has a .5% or 1% expense ratio, I go for the lowest ratio one every time. It will make you more money in the long run.

So [expletive] expense ratios. Be very wary of them.

[Michael]

For simplicity I was combining the concepts of portfolio management fees and expense ratios under the term "fees". I'm fortunate that my 401k doesn't change transaction fees and they have low cost core funds (they have expensive dogs as well). With my roth and taxable account I use Vanguard and I buy their funds, so I don't have any transaction or management costs there either.

With company stock I'm granted shares that I hold for a year so it becomes long-term capital gains to reduce the tax burden. Once the cap gains is long-term I sell and use the money to do the 3 fund strategy.

I figure by working for my company I'm already exposed to enough of their market risk so I choose not to hold their stock long term. I used to work for Bank of America and in 2007 they were one of the only companies in America to be given an AAA rating. Then 2008 happened. It can happen to you.

[Swirls]

Yeah, I follow our company's stock fairly regularly, so as soon as it starts leveling off or dropping under a 10% growth I'll convert it to something else. Hopefully before it plummets too far. [-o<

[Michael]

The S&P 500 is up 81.6% over the last 5 years, so "growing at a 15-20% clip for the past several years" isn't all that impressive and in my opinion is not worth the huge portfolio risk you're taking.

[AWvsCBsteeeerike3]

A 15% annual growth over the past 5 years is about a 200% return.

[Michael]

I shouldn't have said not impressive, but my point still stands. The rest of the market has done quite well and I wouldn't accept that portfolio risk. To each their own, however.

[Freed Roger]

Well, thanks to the guy here who gambles in Vegas telling me I'm too risky - in my sleep I decided to liquidate the 1-2 year non-retirement fund we had in stocks and mutual funds. Now what to do with it? anything better than 1.5% CD?

FWIW, I think we could handle some risk, since this is for a house and we should have some flexibility on that buy to right-size (assuming my wife and I stay on same page).

[Michael]

Haha oh man, now I'm feeling pressure! I didn't expect anyone to listen to a random idiot on the internet! YMMV

Well, thanks to the guy here who gambles in Vegas telling me I'm too risky -

I don't gamble, I take calculated poker risks which makes me money.

in my sleep I decided to liquidate the 1-2 year non-retirement fund we had in stocks and mutual funds. Now what to do with it? anything better than 1.5% CD?

FWIW, I think we could handle some risk, since this is for a house and we should have some flexibility on that buy to right-size (assuming my wife and I stay on same page).

Honestly, a CD or i Bond is what the book tells you to do. There are higher interest savongs/checking accounts out there so that might be another option. Here's a bogleheads thread with a similar question: https://www.bogleheads.org/forum/viewtopic.php?t=98472


It might not be a bad idea to create an account over there and ask your question. Regardless, I think you are doing the right thing no matter what happens in the future.