Teach your children well,,,,,,,,

larryB

Any of you help your adult kids with their investments? Sometimes it’s a challenge to put my 72 year old mind in the place of a 30 year old accumulator. Happily my kid can max her 401K and she let me pick the funds. My eyes lit up when I saw she could get PRIMECAP Admiral shares with no minimum and I set that at 90% allocation. The remaining 10% went to Total Bond. Six years later I don’t know that she ever looks at it. So today I sent her a Text message gently suggesting she sell the bond fund and replace it with a stable value fund. I explained that her bond fund was likely to do poorly for the near future. Immediately she called me,,,, something doesn’t happen too often, and she read me the riot act. “ Dad,,,, you taught me I was investing for 35 years from now and not to look at it too much and just keep investing.” She told me she didn’t want to make any change and it would be fine. I was shocked. I had unwittingly raised a BOGLEHEAD. I had no idea until today.

yogibearbull

My rule of thumb is to prefer stable-value (SV) if its guaranteed rate well exceeds the 30-day SEC yield (i.e. potential future total-return) of the bond fund under consideration. This situation may be reversing soon. The 30-day SEC yield of core BND is 2.64% and that for core-plus FBND is 2.68%.

hank

Good post. My underlying philosophy says that selling when something is down “locks in” a loss and rules out benefiting from eventual reversion to mean. I almost never do that unless I’ve made a relatively recent misstep and decide to reverse course to limit losses and get out of an unwanted position.

Admittedly, Bogle’s reversion to mean may not hold water when it comes to longer dated bonds. But I’m betting that for many segments of the bond market (short, intermediate, high yield) there will ultimately be some reversion to mean - perhaps a somewhat higher (interest rate) mean. To that, I suggest there’s more than one way to value a bond / bond fund. Relation to inflation and other assets ought to be considered - and perhaps their overall impact on one’s portfolio volatility if that’s important to you. David Giroux in this year’s Barron’s Roundtable offered to bet anyone present that the 10-year would finish the year below 2.5%. There were no takers. I think he’s correct. Time will tell.

Bloomberg’s hyping the 10 year at around 2.85% early this morning. More money will rush out. Some to cash and some into equities and commodities ... The year is less than 4 months old. Imagine a fund manager making massive portfolio changes or a business CEO rolling out a new business plan every 3-4 months.

bee

If you Can...by William Bernstein:

Would you believe me if I told you that there’s an investment strategy that a seven-year-old could
understand, will take you fifteen minutes of work per year, outperform 90 percent of finance
professionals in the long run, and make you a millionaire over time?
Well, it is true, and here it is: Start by saving 15 percent of your salary at age 25 into a 401(k) plan,
an IRA, or a taxable account (or all three). Put equal amounts of that 15 percent into just three
different mutual funds:
A U.S. total stock market index fund
An international total stock market index fund
A U.S. total bond market index fund.
Over time, the three funds will grow at different rates, so once per year you’ll adjust their amounts so
that they’re again equal. (That’s the fifteen minutes per year, assuming you’ve enrolled in an
automatic savings plan.)
That’s it; if you can follow this simple recipe throughout your working career, you will almost
certainly beat out most professional investors. More importantly, you’ll likely accumulate enough
savings to retire comfortably.

How Millennials Can Get Rich Slowly

First Reading Assignment (From William Bernstein):

the millionaire-next-door

Observant1

It's not unusual for the Primecap team to experience periods of underperformance.
VPMAX trailed the S&P 500 the past three calendar years.
Their funds have always bounced back.
I'm fairly certain that VPMAX will generate good long-term returns for your daughter.
She is fortunate to have this fund available in her 401(k).

larryB

@ Observant1…..i agree. She was lucky to get Vpmax, With no min purchase and it was generally closed at the time. Now I am encouraging her to jump on I Bonds. She is a medical professional and that low limit doesn’t seem to get her interest. Haha.