re: Various Financial Questions

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The $300 for metals can be looked at essentially the same as $300 for baseball cards, stamps, or any other sort of collectible you either place some sort of sentimental value on or have an expectation that it will increase in value

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You don't believe physical gold or silver to be a good investment?

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I do, but I hesitate to advise in terms of an investment as it has no income. They are also volatile and have risks associated with them outside of just inflationary or deflationary forces.

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I thought PMs would be a good long term investment Shows you how much I know


Plus they are pretty and shiny!

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I will have more to say on this over the weekend when I post something more detailed.

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I look forward to it

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I went with the ETF over physical ownership b/c I want exposure to commodities generally and I think my HOA would complain if I tried to store a tankful of crude oil in my basement or a railcar of corn in the back yard.

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Move to the country

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Security A = Goes up 60% then down 40%
Security B = Goes up 6% then down 4%.

Security B is worth more than your initial investment while Security A is worth less. The key to growing capital over the long-term is to avoid large losses. The longer your time horizon, the higher chances the turtle will always beat the hare.

With that in mind we go to allocation drivers. Developed economies are looking at 0-2% real growth over the next 3-5 years while emerging nations are looking at 4-5% real growth. From a technical perspective, the realm of "safe" assets (treasuries, mortgages, agency debentures) is decreasing, pushing prices up and yields down. Investors are starved for yield which pushes them out the risk spectrum, in this case investment grade credit bonds would be the logical next step.

The equity market is highly volatile and if you believe that we'll only see 0-2% real growth than that is not good reason to own equities over the long term in large amounts. You should still have exposure, but "playing stocks" should be left to your personal brokerage account rather than retirement. With all this in mind this is roughly the personal allocation that I have and what I have allocated for friends and family.

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There are numerous papers by competent parties which have studied equity returns over long periods of time which point to slower growing economies exhibiting stronger equity returns than faster growing economies. What you have written regarding projected/estimated future real returns would seem to make rational sense, but often it has not.

The future is unknown. I am still a fan of the Ben Graham's 25/75 guideline, it might dampen gains in some years, but does provide a cushion in avoiding large losses when market valuations are high. During a period of above average market valuations one could also choose investments in funds or ETFs which have captured significant upside and experienced lower downside risk compared to investments in market cap indexes. Some people's personalities and skill set tilt them to trading, that's not my investing method. Personally, I would not buy domestic REITs at current yields (which include ROC in most distributions) and valuations. International, maybe.

I have 20% of my portfolio in TIPS, primarily in individual bonds that were bought when real yields were much higher. Today, I couldn't advocate buying short or other duration TIPS as one is either buying negative yielding securities or accepting the volatility of long bonds for very inconsequential real yield. I bonds are a maybe, at least one is guaranteed stability of principal and maintains the option to sell with a very minimal ding to accrued interest after Yr1, through Yr5, then no penalty.

OK, now a tl;dr on how I approach my investments. Mostly my approach is based on the idea that unless you are obscenely wealthy (or running a large fund) it isn’t worth it to spend a lot of time doing the kind of careful research it takes to get a small (and questionable) edge over the market. So I don’t.

I start by developing a baseline that is based on a very rough estimate of how large each sector is (this is classic MPT of course). For lack of a demonstrably better method, I divide the world into domestic, European, non-European developed markets, and “other”. Each group gets roughly equal shares, or about 25% apiece. The first three I split more or less evenly into stock and bond funds. The last (“other”) is a mix of a commodities fund and emerging markets debt, and I’m defining an emerging market as a part of the world that can’t reasonably be called “developed” regardless of geographic location.

So my “baseline” allocation is simply 1/8 each into the following:
US Equities, US Debt, European Equities, European Debt, non-European Equities, Non-European Debt,
Commodities fund, Emerging markets.

Now I tweak based on my personal prejudices (which is exactly what they are – this is not hard-core research). I boost US holdings a bit because as weird as our regulatory environment can be it is often still better than anywhere else. However, a wide-ranging US equities fund has a fair amount of correlation with other developed nations due to the multinationals, so I also increased emerging market holdings to reduce the correlation.

So my final targets are more like this:
Emerging markets: 20%
Euro debt and Euro equities: 10% each for a total of 20%
Non-Euro developed market debt and equity: 10% each for a total of 20%
US equity and debt: 15% each for a total of 30%
Commodity: 10%

Compared with Benny’s divisions, I have a little less EM and Domestic Debt. For “real assets” I’m also slightly less, and using a pure commodities index fund since I have enough real estate as it is. On the other hand I have a good bit more developed world international equities and debt.

But the biggest difference is philosophical. Notice that I haven’t really thought that much about having a reason why I believe a particular sector might be strong because I don’t think I know enough to beat market expectations. Not that I think it’s impossible to do, but I don’t have the time to worry about it or a big enough portfolio for any resulting edge to matter much. Nonetheless, our divisions aren’t that far apart. That said, I largely agree with what Benny says about each sector although I prefer a shorter term corporate bond fund instead of long term. My reasoning is that if rates do rise I’ll do better and I’m willing to give up a little yield in order to do so. Just a personal opinion though.

With these guidelines in place, then I start picking actual holdings, focusing on low expense-ratio index funds and ETF’s. Here is where reading the prospectus is absolutely mandatory and it’s where I spend the most time. For example, what one fund may call “Emerging Markets” may be what I call a non-European developed market. Many “Asian” funds are really just Japan funds. Also, many funds (regardless of sector) park uninvested cash in US Treasuries. So for each fund I actually assign a weight across my own categories. For example, I might find that some fund calling itself an “Emeriging Markets Equity Index Fund” invests 60% in the Nikkei average (yes, they will sometimes call themselves an emerging market fund anyway but I digress), 20% in other random Asian indexes, and 20% in US Treasuries. Depending on the details, I might rate this fund as 70% non-European developed, 10% emerging market equity (not bond), and 20% US bonds. This case highlights why I don’t make much of a distinction between emerging markets debt and equity – I agree that debt is better due to government backing but it’s just too hard to insist on it using this approach.

With the job done, I completely ignore what’s going on for another year or so, when I do it all over again. I review fund prospectuses (prospectii?) to see if anything has changed much about their holdings/strategy, and then rebalance.

You're asking the right questions.

I think you would benefit immensely by reading "The Bogleheads' Guide to Investing".

Good luck!

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So I looked up vanguard IRAs and I think that is whom I will be going with. Still trying to decide between rolling my 401k into a Roth or Conventional IRA

1) If I roll it into a Roth, will I automatically meet my 5k a year investment cap for the first year? Its currently $25k
2) If I roll it into a conventional, can I then open a Roth on my own and fund that with 5k out of my checking account? (Im assuming that under law you can only have one Roth?)
3) I'm I correct in thinking that with the Roth, ANY gains I earn in it will not be taxed, ever?
4) If I do roll my 401k to a roth, will I just claim another 25k in income on my 2013 tax returns?

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1. If you roll it over into a Roth, it won't be factored into your annual contribution limit.
2. I don't see why not. The rollover will not affect your $5000 overall IRA contribution limit.
3. So long as you start withdrawals after age 59.5, and the government doesn't change the rules, then yes.
4. Should be about that simple, but I know at least back in 2010 they were letting people spread the tax liability over two years.

frick, I've been reading for the past 30 min on doing na IRA vs Roth IRA for the $25k in my old employer 401k and I cant make a decision

I think any way that I go, I will end up regretting it

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frick, I've been reading for the past 30 min on doing na IRA vs Roth IRA for the $25k in my old employer 401k and I cant make a decision

I think any way that I go, I will end up regretting it

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It's pay now, or pay later.

I'll give you a time value of money example:

Pay now- Roth (ex. 25% tax):
-Pay $6,250 in taxes.
-$18,750 leftover
-Assumed 8% return over 30 years gives you $188,674 tax free.
[ 188674= 18750 x (1.08)^30 ]

Pay later- Traditional (ex. 25% tax):
-No taxes now
-Invest 25k at 8% return over 30 years gives you $251k
[ 251,566 = 25000 x (1.08)^30 ]
-Gives you $188,674 after 25% tax

As you can see you end up with the same amount, $188,674. So it comes down to whether you believe taxes will be higher or lower when you retire. With $16.5 trillion of debt and counting and our unfunded liabilities, I'd bet on taxes being higher. Additionally, the ability to withdrawal contributions in the Roth IRA is a big plus.