Most of us will not become wealthy in this profession. What else do you do for income?

[Katera]

Ugh - count me out. Saving is one thing, but 50%? Whenever I encounter Dave-Ramsey-evangelizer types, I just can't help but think, what about the now? if you're always saving for the future, when do you finally allow yourself to enjoy the fruits of your labor? I seriously doubt after decades of pinching pennies that anyone can unlearn being that degree of a cheapskate. I agree that saving is important, but there has to be a balance between enjoying yourself in the present and planning for the future. Quite honestly, I'd be perfectly content to die with $0.35 in my bank account - because you can't take it with you!

 

Not only that, but none of us are guaranteed tomorrow...

 

I fall into this camp.  I know lots of people who have worked themselves hard for 25 years only to get sick and die right before retiring and "living the good life".  I am all for saving a bit for the future, but none of us are guaranteed one more day.

One of my favorite quotes:  "Life is what happens when you are planning for the future...."

[Guest UVAPAC]

My understanding is to fund your 401k/403b to get your full employer match, then switch to funding your ROTH IRA - and then if you still have more left to invest go back to the 401k/403b.  But it's all about deciding what's best for you.

I agree with this.  You need to take advantage of your full employer match, otherwise you are "giving away free money."  Next turn to Roth IRA.

 

Obviously 403b/401k is tax deductable at the end of the year (advantage in the short term) versus Roth IRA (no taxes on gains if you hold to age 65+)

 

You can not pass up free match from company... besides most of them are so minuscule now it should be easy to take advantage of the match plus a Roth... not many places match 10% of 10% anymore... let alone a match at all

[IDCtoPA]

From my moderate experience in real estate, you should NEVER go into debt for real estate investments.  If you do, the only person who makes money is the bank.  I started in real estate doing the same thing you did (getting mortgage to buy rental) and never made a penny.  I've worked very hard over past 2 years and have paid off almost all of my mortgages, and now my rentals are becoming lucrative.

 

Your worldview seems, to me, to be one of sadness and victimhood.  Maybe I'm wrong.

I didn't buy in order to rent. I bought to live there at a time when I expected to be single for the rest of my life. Things changed thanks to the supreme court and the repeal of DADT. Suddenly I was no longer single and the place was too small for two, so I moved out and I rent it out. 

 

You are certainly wrong. And sort of arrogant to even think you can assess my world view based on a a few comments on a blog.

 

If you don't recognize that things happen to people unexpectedly which cause hardships and in some cases destroy their savings, then you are not in touch with the real world. The financial circumstances I described are realistic occurrences for many people. They have not happened to me, but they have happened to people I know. I am neither sad nor a victim. I am a realist that tries not to judge other peoples success or failure based on what has been a very fortunate life for me. 

 

The financial advice you give is based on sound principle. I hope many young folks following the blog and uncertain of what to do will follow it. But, they and you should be aware that even if they do so diligently it is not a guarantee against hardship, and they and you should not assume that folks who are struggling did not do the right thing. Many did and were devastated anyway.

 

That is not victimhood, that is life my friend. 

[Boatswain2PA]

I agree with this.  You need to take advantage of your full employer match, otherwise you are "giving away free money."  Next turn to Roth IRA.

 

Obviously 403b/401k is tax deductable at the end of the year (advantage in the short term) versus Roth IRA (no taxes on gains if you hold to age 65+)

 

You can not pass up free match from company... besides most of them are so minuscule now it should be easy to take advantage of the match plus a Roth... not many places match 10% of 10% anymore... let alone a match at all

First, you can start withdrawing from your ROTH tax free at age 59.5.

 

Second, I just spent about 20 minutes running a bunch of numbers and found that you are right about taking the match FIRST, then the ROTH....as long as the returns are the same.

 

Congrats...you won an internet disagreement!  :-) 

 

However I think it's a very important point that the company's 401K/403B MUST DO AS GOOD AS WHAT THE ROTH IRA CAN DO for this to be true.  There are many 401Ks who are very poorly managed and have very high fees.  401k managers often offer companies a complex mix of products that wind up costing the employees a lot of money.  For example, PC2ED is investing in age-determinant funds which often have very high fees.  

 

403Bs are often completely and totally mismanaged, sometimes even criminally mismanaged.  

 

[Simplify]

Sound advice above.  I agree that the key to financial independence is paying off debt early.  However,  I would advocate that you also live a life worth living.   Take vacations.  Take lots of vacations.  Travel and have lots of incredible experiences along the way.  Don't sacrifice your life now in order to boost a 401K or a ROTH by a few % points later.  You will regret it.  

[mgriffiths]

Sound advice above.  I agree that the key to financial independence is paying off debt early.  However,  I would advocate that you also live a life worth living.   Take vacations.  Take lots of vacations.  Travel and have lots of incredible experiences along the way.  Don't sacrifice your life now in order to boost a 401K or a ROTH by a few % points later.  You will regret it.  

Very true...as I mentioned in an above post my father is a FM doc, and recently had a patient in severe heart failure with well over $1 million cash in the bank.  At his last appointment with my father before dying, he looked at my dad (who was exhausted and is working more hours now at ~65 than he ever has and ever intended to) and said, "Don't work your life away, it's not worth it," and then proceeded to tell my dad about his savings.  Sad story as the man died about two weeks later and never got to "enjoy" his money.

 

Doesn't mean we shouldn't plan, but definitely a reason to consider not going overboard.  Life is short no matter what, take time for yourself, your family, to help others beyond work, etc.

[Boatswain2PA]

On the other hand, I enjoy my work, vacation 2-3 times a year, and I hope I die with a couple million in the bank.  That would be a terrific blessing for my kids, grandkids, and the charities that my wife and I give to.

Nothing wrong with dieing that way.

I agree, all things in moderation.  LIve for today, prepare and save for tomorrow.  

[AbeTheBabe]

The Personal Finance subreddit has a great wiki with wonderful information about retirement and a pretty helpful community. Highly suggest it.

 

https://www.reddit.com/r/personalfinance/wiki/index

 

I also just finished reading "The Millionaire Next Door." Basically, live below your means and you'll be rich.

[PC2ED]

Am I doing this right?

 

I contribute 5% into the account where my employer contributes 6%.  then 1% into the account that I don't get a match.

 

 

 - Within the 403b retirement plan, I chose VBTIX (bond) and VINIX (large blend)

 

 - Within the 403b with Prudential GIA (the one I get 6% employer match), I chose the 2060 target-date fund

 

---

 

Question: 

 

I spoke with a representative, according to him, my employer matches 6% of my gross salary. He further stated, if I elect to contribute 0%, I will STILL get the 6% of my gross salary from the employer.  Is this possible?

 

 

Scenario: 

 

Say my elected contributions reach the max for this year ($18,000) BEFORE I get the full 6% from my employer:

 

 1)  Will I STILL get balance, from my employer, added to my account making it >18K?   (that would be ideal)

 2)  Will my employer stop my contributions (before reaching 18K) and then add the balance to make it 18,000? 

 3)  Will my employer let me fully contribute, causing them not to fully gives me the remaining balance of from the 6%? (hence leaving money on the table)

[Boatswain2PA]

Am I doing this right?

 

I contribute 5% into the account where my employer matches 6%.  then 1% into the account that I don't get a match.

 

 

 - Within the 403b retirement plan, I chose VBTIX (bond) and VINIX (large blend)

 

 - Within the 403b with Prudential GIA (the one I get 6% employer match), I chose the 2060 target-date fund

PC - I can't tell you whether or not you're doing it "right" or "wrong"....that's a values based decision that only YOU can make...but I'll help you understand what you ARE doing, and maybe give you some things to think about.

 

First, if the employer matches 6% and you're only putting in 5%, then you are losing out on 1% free money.  If you make $12K a month, that extra 1% is $120 that you could put into your account, matched by your employer's $120 per month.  The $120 that your employer gives you in this scenario (this FREE MONEY) will turn into $176,000 over 30 years.  Oh, and the $120 extra that YOU are putting in ALSO turns into another $176K.    You might want to consider upping your contribution by 1% to take full advantage of that match.  

 

Second, let's look at what you appear to have your money in.  

 

VBTIX is, I believe, a Vanguard bond fund.  Looking at MorningStar's review of that fund's performance (http://quotes.morningstar.com/chart/fund/chart?t=VBTIX&region=usa&culture=en-US), if you had put $10,000 in that fund 10 years ago it would have turned into a little more than $15,084 today, so about 4.2% annual return over past 10 years.  

 

That's not a terrific rate of return compared to a stocks, but this is a BOND fund.  Generally bonds are much safer than stocks, so less risk of you losing your money in a downturn.  

 

VINIX is effectively an S&P 500 fund that targets large-cap stocks, or stocks of large companies.  More volatile than bonds, but still considered relatively stable (large companies rarely fail quickly).  Looking at MorningStar's review (http://quotes.morningstar.com/chart/fund/chart?t=VINIX&region=usa&culture=en_US) you will see that if you had put $10K into that fund 10 years ago it would have turned into about $19,458, so about a 6.9% annual return over the past 10 years. 

 

As for your Prudential target-date-fund - that's  hard to evaluate.  Target date funds are easy for the customer (you) because you just put money in and leave it, and as you get older they move your money from a higher-risk mix to a lower risk mix according to some formula they have.  

 

If you wanted to add more risk to your portfolio, in exchange for likely greater returns, you could invest in something like Vanguard's Small Cap (NAESX).  These are small businesses, the ones that take off and soar, or crash and burn, so you get more volatility.  But, if you had invested $10K into that fund 10 years ago it would have turned into $21,256 today, a 7.9% annual return.  

 

And if you wanted to balance that increased risk with investing internationally (VBTIX, VINIX, and NAESX are all domestic funds I believe), you could invest in whatever international funds they offer. 

 

 

The MAJOR point I want to make here is that you should look at the 10 year (and maybe 20 year) return pattern for the funds that you are investing in, and compare the rates of returns to other comparable funds.

 

 

Also, you should compare the fees and other associated costs with these funds.  Vanguard charges a 0.05% annual fee for their VINIX, and your 403b manager likely charges an annual fee as well.  You should have an idea of what that is.

 

 

Lastly, you're only investing 5-6% into these.  That's NOT enough to retire well on.  If you are still working on debt, then I think that's fine (because you're getting a match) as long as you are punching your debt in it's face every month with big extra payments.  If you're in debt and NOT doing that....then buckle down on your budget and start doing so.  If you ARE out of debt (or are nearly out of debt and punching it in it's face), then you should also fund a ROTH IRA.  

 

I hope that helped, and of course take everything I say with a grain of salt because I'm NOT a certified financial guru.

 

 

 

 

[PC2ED]

Thank you for your time my friend.

 

regarding the "match" - I just spoke with a representative, according to him, my employer matches 6% of my gross salary. He further stated, if I elect to contribute 0%, I will STILL get the 6% of my gross salary from the employer.  Me contributing or not doesn't seem to be a factor of whether I get their free money. Is this possible?

 

- if it is possible, my elected 5% + employer's 6% of my gross  = 11 % into one account 

 

---

 

My 403b doesn't have good options... it's mostly mutual fund, with 0.30 - 0.80% annual fees!

[PC2ED]

 

THESE ARE MY OPTIONS

 

 

 

 

EQUITIES

 

American Funds EuroPacific Growth Fund - R6

American Funds Growth Fund of America - R6

American Funds New World R6

 CREF Global Equities R3

 CREF Stock R3

Cohen & Steers Realty Shares

Eaton Vance Large Cap Value I

Prudential Jennison Natural Resources Q

Prudential Jennison Small Company Fund Q

Vanguard Emerging Markets Stock Index Fund Institutional

Vanguard Explorer Fund Admiral

Vanguard Institutional Index Fund Institutional

Vanguard International Growth Fund Admiral

Vanguard International Value Fund Investor

Vanguard PRIMECAP Fund Admiral

Vanguard Windsor Fund Admiral

Victory Diversified Stock Fund I

FIXED INCOME

 

American Funds Bond Fund of America R6

CREF Inflation-Linked Bond R3

Loomis Sayles Bond Fund Institutional Class Shares

Vanguard Inflation Protected Securities Fund Institutional

Vanguard Total Bond Market Index Fund Institutional

 

GUARANTEED

TIAA Traditional

MONEY MARKET

CREF Money Market R3

Prudential Government Money Market Z

Vanguard Federal Money Market Fund Investor

 

MULTI-ASSET

 

American Funds Balanced Fund - R6

CREF Social Choice R3

Vanguard Institutional Target Retirement 2010 Institutional

Vanguard Institutional Target Retirement 2015 Institutional

Vanguard Institutional Target Retirement 2020 Institutional

Vanguard Institutional Target Retirement 2025 Institutional

Vanguard Institutional Target Retirement 2030 Institutional

Vanguard Institutional Target Retirement 2035 Institutional

Vanguard Institutional Target Retirement 2040 Institutional

Vanguard Institutional Target Retirement 2045 Institutional

Vanguard Institutional Target Retirement 2050 Institutional

Vanguard Institutional Target Retirement 2055 Institutional

Vanguard Institutional Target Retirement 2060 Institutional

Vanguard Institutional Target Retirement Income Institutional

[BruceBanner]

I fall into this camp.  I know lots of people who have worked themselves hard for 25 years only to get sick and die right before retiring and "living the good life".  I am all for saving a bit for the future, but none of us are guaranteed one more day.

One of my favorite quotes:  "Life is what happens when you are planning for the future...."

 

Again the perception lives on that a high savings rate = miserable life. 

 

I used to have the same mentality until I realized what an illusion it really is. The disease of consumerism. Buying things and taking expensive vacations twice a year doesn't really equal "living" for me. Because while fun, I always have to go back to work. I never have the time or freedom to do the things I truly want to do. Rinse and repeat forever.

 

The irony is you cant live when you're working all the time and chained to those precious few weeks of vacation every year. Maybe you like your job, that's fine. But you (and I) HAVE to work. And the more you spend relative to your income, the longer this will be your reality.

 

There is obviously a balance to be had. People just see it as so binary. "I'm not living like a monk!!" It doesnt have to be that way. Just a little discipline goes a long way. Postponing happiness until retirement is definitely not a smart way to go through life, but I think not being disciplined in your prime earning years is equally foolish.

[BruceBanner]

Thank you for your time my friend.

 

regarding the "match" - I just spoke with a representative, according to him, my employer matches 6% of my gross salary. 

 

 

That is amazing. That is FREE MONEY!

 

I'd recommend the Vanguard total stock index and the vanguard total bond index. You get enough international exposure with the total stock index, IMO. This is a great "set it and forget it" plan. I have mine at 90/10 stocks/bonds.

[PC2ED]

If you are still working on debt, then I think that's fine (because you're getting a match) as long as you are punching your debt in it's face every month with big extra payments.  If you're in debt and NOT doing that....then buckle down on your budget and start doing so.  If you ARE out of debt (or are nearly out of debt and punching it in it's face), then you should also fund a ROTH IRA.  

I hope that helped, and of course take everything I say with a grain of salt because I'm NOT a certified financial guru.

 

 

 

 

I'm in the process of getting rid of my debts in a snowballing manner

[Boatswain2PA]

Thank you for your time my friend.

 

regarding the "match" - I just spoke with a representative, according to him, my employer matches 6% of my gross salary. He further stated, if I elect to contribute 0%, I will STILL get the 6% of my gross salary from the employer.  Me contributing or not doesn't seem to be a factor of whether I get their free money. Is this possible?

 

- if it is possible, my elected 5% + employer's 6% of my gross  = 11 % into one account 

 

---

 

My 403b doesn't have good options... it's mostly mutual fund, with 0.30 - 0.80% annual fees!

I would question that....a LOT.....because the terms they are using don't match.

 

Some companies give a CONTRIBUTION to employee's 401k/403b, no matter how much the employee puts in.  Most companies give a MATCH.  If they are using the term match, then that infers they want you to put some in.

 

If they CONTRIBUTE 6%, then of course take that free money.  If you are in debt, I wouldn't put more into retirement until that debt (other than mortgage) is gone.  If you're out of debt, then I would fully fund ROTH for you and spouse ($5500 ea for most people), then increase your contributions to the 401K until you're investing 15% of your gross income.

 

BTW - You're cheating if you're counting the 6% employer contribution in that 15% calculation.  ONE of the purposes of investing 15% off your gross income into retirement is to reduce your standard of living while working so that when you retire your standard of living remains pretty stable.  

 

Here's what I mean by that:  If you make 100K a year, pay 30K in taxes and invest 15K.  You live on 55K a year standard of living.  In retirement, you just need to withdraw $55K to maintain the same standard of living.

 

As to what funds to invest in....Bruce's strategy is simple and would work for most people.  

[mgriffiths]

In regards to employer match vs. contribution, a job I declined had the below retirement package (other very negative reasons I said no, since retirement was AWESOME)

 

Employee CONTRIBUTES 3%, employer MATCHES 8% - for a total of 11%.  The 8% was contingent on me putting in the 3%, but it was more than just a 1:1 match.  On top of that, there was a 5% employer CONTRIBUTION that occurred no matter what.  If I CONTRIBUTED 0%, I got 5%.  If I CONTRIBUTED 3%, I received a total of 16% (3% + 8% + 5%)

 

Hope that can clear some of the confusion.

[Boatswain2PA]

I'm in the process of getting rid of my debts in a snowballing manner

Nice!  I recommend Dave Ramsey's method for getting out of debt.  I agree that our income is our greatest wealth-building tool once it is freed of the burden of paying debt.  

 

I don't necessarily agree with all of his investing advice though.  (no need for high cost managed accounts, etc).

 

If I were in your shoes, I would invest up to the match in your 403b.  If you are able to throw big chunks of money every month at your debt AND still make a $500/month contribution to a ROTH then I would do so.  If you can't do that, then you need to roll your snowball more...

 

Good luck!

[PC2ED]

Nice!  I recommend Dave Ramsey's method for getting out of debt.  I agree that our income is our greatest wealth-building tool once it is freed of the burden of paying debt.  

 

I don't necessarily agree with all of his investing advice though.  (no need for high cost managed accounts, etc).

 

If I were in your shoes, I would invest up to the match in your 403b.  If you are able to throw big chunks of money every month at your debt AND still make a $500/month contribution to a ROTH then I would do so.  If you can't do that, then you need to roll your snowball more...

 

Good luck!

 

Thank you very much, you cleared many confusions I had.

 

You are RIGHT, it is NOT a "match". it is a contribution of 6% regardless of me putting in money or not, I get the 6% of every paycheck.

--

 

Now regarding the " invest 15%" of my gross... If I invest 15% ($15,750) of it plus the 6% ($6,300) that would make it too much (>18K) for my 403b, I'd have to put the extra in a ROTH IRA.

 

However, I don't want to contribute more than 6% from my gross yet. 

 

--

 

I may be wrong on this, but I noticed that when I contribute, I get a bigger NET on my paycheck, and when I do not contribute I NET a small  amount  ¯\_(ツ)_/¯

[Boatswain2PA]

If I were in your shoes, right now I would simply allow the company to give me 6% into the 403B.  It's free  money.

Next thing is to pay off debt aggressively.  If you ARE able to AGGRESSIVELY pay down the debt AND have $500 a month to throw toward a ROTH, then I would do that.

 

After your debt is paid off (except for house) then, using the numbers above, you invest 15% (15,750) in retirement, with $5,500 into a ROTH and $10,250 into the 403B.  That, plus the $6,300 the company is contributing, gives you $16,550 into your 403B.  

 

That's $22,050 a year into retirement.  After 30 years at 8% that's $2.7 million.  Drawing out 6% of that a year gives you a nice retirement income of $162,000

[PRS-PA]

A lot of great information in this thread, but I just wanted to point out a couple of quick points that I noticed were incorrect from above statements:

 

That is amazing. That is FREE MONEY!

 

I'd recommend the Vanguard total stock index and the vanguard total bond index. You get enough international exposure with the total stock index, IMO. This is a great "set it and forget it" plan. I have mine at 90/10 stocks/bonds.

 

The Vanguard Total Stock Index listed would not include international exposure in this mutual fund.  That fund just holds US Equities.

 

 

Thank you very much, you cleared many confusions I had.

 

You are RIGHT, it is NOT a "match". it is a contribution of 6% regardless of me putting in money or not, I get the 6% of every paycheck.

--

 

Now regarding the " invest 15%" of my gross... If I invest 15% ($15,750) of it plus the 6% ($6,300) that would make it too much (>18K) for my 403b, I'd have to put the extra in a ROTH IRA.

 

However, I don't want to contribute more than 6% from my gross yet. 

 

If I were in your shoes, right now I would simply allow the company to give me 6% into the 403B.  It's free  money.

Next thing is to pay off debt aggressively.  If you ARE able to AGGRESSIVELY pay down the debt AND have $500 a month to throw toward a ROTH, then I would do that.

 

After your debt is paid off (except for house) then, using the numbers above, you invest 15% (15,750) in retirement, with $5,500 into a ROTH and $10,250 into the 403B.  That, plus the $6,300 the company is contributing, gives you $16,550 into your 403B.  

 

That's $22,050 a year into retirement.  After 30 years at 8% that's $2.7 million.  Drawing out 6% of that a year gives you a nice retirement income of $162,000

 

Although the employee and employer contributions are held many times at the same institution, they are not combined to reach the employee contribution limits.  In other words: 

- IRS allows an employee to contribute to a 403(b) account out of salary $18,000 in 2015 - 2017

- if over 50, an additional $6k can be placed for "catch-up"

- contribution by employer do not count as part of this calculation

- The limit on annual additions (the combination of all employer contributions and employee elective deferrals to all 403(b) accounts) generally is the lesser of $54k

 

However, your numbers are still correct on money at retirement.  A safer withdrawal rate of 4% is more realistic if you want the money to last 30 years.  That is still $109k/year plus social security.  That should be manageable in retirement to live off of.  One's goal should be to increase their contribution rate to reach the maximum as that is tax free space that can never be recaptured once the year is over.

[Maverick87]

You talk about statistics of living to 70, but then ignore the statistics of the stock market which has, over the past century, gone up tremendously.  I believe there has only been ONE 10 year period where the DOW was down, and it recovered again the next year.  That is ONE ten year period, out of NINETY ten year periods over the past 100 years, that the DOW was down.

 

Over the past 60 years I believe the average DOW increase has been something like 8-9%.  That's a LOT better than your TIPS.

 

And you don't need a "steep learning curve" to invest in a couple of inexpensive, broad-spectrum mutual funds.  It takes an intellectually average person about an hour to figure out what a ROTH is, get a base understanding of mutual funds, and then go to Vanguard/Fidelity/Dodge&Cox/etc to set up an account and transfer money.

 

TIPS is good in protecting against inflation. My issues with the stock market is that you pretty much have a 50% chance of being right on a stock and it's largely out of your control. Look at the crash of 2008. Many people were wiped out with that. Sure, it's unlikely to happen again for some time, but that doesn't mean it won't happen.

 

As far as the steep learning curve, I was talking about stock options. If you're going to invest in the stock market, this is the way to go. But it's very complex and takes a while to learn. It also requires being an active market participant. This method is one of the ways the rich get richer. The yearly return possibility is enormous. This has been my first full year of trading options and I'm at around an 18% return....and this is nothing compared to friends of mine who have been doing it for years.

 

But, again, it's not something that you could just sit back and let happen. It requires complete conceptual understanding and a significant time commitment.

 

The thing is that what used to work in the past may not work anymore. Times are changing. I find that many baby boomers and older Gen Xers are really into things like the stock market and real estate, buy and hold forever. This worked in the past. It does not work in the present. Millennials need new strategies in order to accumulate and maintain wealth. One of the benefits of being young in today's world is that, with globalization and the internet, it's never been easier to make a lot of money. For some reason, most people don't seem to realize this.

[Guest UVAPAC]

TIPS is good in protecting against inflation. My issues with the stock market is that you pretty much have a 50% chance of being right on a stock and it's largely out of your control. Look at the crash of 2008. Many people were wiped out with that. Sure, it's unlikely to happen again for some time, but that doesn't mean it won't happen.

 

As far as the steep learning curve, I was talking about stock options. If you're going to invest in the stock market, this is the way to go. But it's very complex and takes a while to learn. It also requires being an active market participant. This method is one of the ways the rich get richer. The yearly return possibility is enormous. This has been my first full year of trading options and I'm at around an 18% return....and this is nothing compared to friends of mine who have been doing it for years.

 

But, again, it's not something that you could just sit back and let happen. It requires complete conceptual understanding and a significant time commitment.

 

The thing is that what used to work in the past may not work anymore. Times are changing. I find that many baby boomers and older Gen Xers are really into things like the stock market and real estate, buy and hold forever. This worked in the past. It does not work in the present. Millennials need new strategies in order to accumulate and maintain wealth. One of the benefits of being young in today's world is that, with globalization and the internet, it's never been easier to make a lot of money. For some reason, most people don't seem to realize this.

 

 

I am just curious, do you have any data to substantiate that "buy and hold" does not work?  Obviously if you look at anyone who has bought and held stocks over the last 15-20 years are at all time historical highs!

 

If you could guarantee a return rate of 18% trading options, why even practice medicine anymore?  You could manage your own hedge fund, and would have millions of people lining up to invest with you!

 

Reality is that this is one of the greatest bull markets in the history of the stock market.  When times are bad, and the market downturn comes (and it will)... how do investors react?

 

The people who pulled their money out during the previous recession got burnt terribly.  The people who held, are now wealthier than ever before.  

[Boatswain2PA]

Buy and hold HAS worked for a hundred years, it's worked very, very, very well over the past 60 years.  

 

 

TIPS is good in protecting against inflation. My issues with the stock market is that you pretty much have a 50% chance of being right on a stock and it's largely out of your control. Look at the crash of 2008. Many people were wiped out with that. Sure, it's unlikely to happen again for some time, but that doesn't mean it won't happen.

 

As far as the steep learning curve, I was talking about stock options. If you're going to invest in the stock market, this is the way to go. But it's very complex and takes a while to learn. It also requires being an active market participant. This method is one of the ways the rich get richer. The yearly return possibility is enormous. This has been my first full year of trading options and I'm at around an 18% return....and this is nothing compared to friends of mine who have been doing it for years.

 

But, again, it's not something that you could just sit back and let happen. It requires complete conceptual understanding and a significant time commitment.

 

The thing is that what used to work in the past may not work anymore. Times are changing. I find that many baby boomers and older Gen Xers are really into things like the stock market and real estate, buy and hold forever. This worked in the past. It does not work in the present. Millennials need new strategies in order to accumulate and maintain wealth. One of the benefits of being young in today's world is that, with globalization and the internet, it's never been easier to make a lot of money. For some reason, most people don't seem to realize this.

TIPS may beat inflation, but I'm not just looking to beat inflation.  I want growth well beyond inflation.

50% chance of being right on a stock?  Not if you buy blue-chips.  But either way, that's why I don't buy individual stocks (unless I am able to get preferred pricing, and only then just with play money....but that's another story).  That's why most people should stick with mutual funds.  You cannot look at the history of any major company's major index funds and say that investors "pretty much have a 50% chance of being right."   Sorry Mav, but that is ridiculous.

Stock options & futures can be very lucrative.  But unless you are Crooked/Connected like Hillary Clinton you're not going to be able to turn $10K in options into $1,000,000 overnight without taking EXTREME RISK (ie: better odds playing Roulette at the casino).  Some people spend LOTS of their time and energy learning about these and doing well on much smaller margins.  If you're making 18%, then congrats to YOU.  But most people do not have the time/desire to learn to do that.

Meanwhile, investing in solid mutual funds can often earn you 8-10% a year in returns, and all you gotta do is look at a few graphs to decide what fund you want your money in.  

Your last paragraph may be right....but then again doomsday prophets have been saying that for centuries.  There ARE changes going on that MAY change the stock market's constant upward growth.  Boomers are retiring and will be dipping into their retirement accounts, globalization, robotics, etc.  Some people look at these changes and get worried.  Others look at these changes and aren't worried.

[south]

 

Your last paragraph may be right....but then again doomsday prophets have been saying that for centuries.  There ARE changes going on that MAY change the stock market's constant upward growth.  Boomers are retiring and will be dipping into their retirement accounts, globalization, robotics, etc.  Some people look at these changes and get worried.  Others look at these changes and aren't worried.

I agree with this.  The world may be changing and what has worked for 100 years may not worked after the next sort of crash.  But for now I see no other path on the horizon.  Because it's how the big money wants it.

 

Whenever I run into people that try to convince me that the (probably a total scam) investment scheme is going to make them millions but don't otherwise know a single thing about investing, I end up telling them "look at the way and the system that rich people use to passively make money.  Then...do that."  This means the stock market, index funds, regular investing is the way to go until the really rich people find something else.  Then I will try to do that. 

 

Stuff like options trading and day trading (" for a limited time, get our system with level 2 quotes!!") still has the low success rates that everything else does.  Something like 15% or less of full-time, educated, experienced, professional traders makes money in a given year.  I'm none of these, so I've never been tempted.  I did read through the "Apiary fund trading platform junk mail the other day that they ended up admitting that 97% of their traders lose money every year.  Then I LOL'd.