Investing is something that is akin to smoke and mirrors. About the time you get serious about investing and hit your peak earning years, you will encounter the charlatans which are wolves dressed in sheep’s clothing. You will meet people who you think are financial advisors who turn out to really be annuity sales persons. Some even use the term fiduciary and yet you are being led down the annuity path. No wonder, annuities have obscenely high commissions for the salesperson. Annuity sales pitches are often directly proportional to “free” steak dinners somewhere.
Many managed mutual funds fail to earn their keep. To have the superior market knowledge to be able to beat index funds is a rare find. Therefore, the fees of your fund have to make your mutual fund worth the extra management fees in beating the market. This is a tall order, and few can do it. This is why the low-fee index fund exists.
Therefore, the index fund with low fees wins the day. The total market fund VTI and the S&P 500 fund VOO. In your 401K you can normally find the equivalent of these two with low fees. If you don’t have a 401k then a Vanguard or Fidelity account gains you access to these funds.
Many subscribe to using bonds as a buffer. Normally bonds work opposite to the stock market and can reduce volatility. A 60 percent stock and 40 percent bond portfolio are popular. Although you may sleep better with a high amount of bonds, you pay a premium for this in reduced returns. The 60/40 portfolio may be appropriate for those who are within a few years of retirement and are avoiding a sequence of return risk or a bear market right when they retire. Vanguard’s BND fund is very popular for this.
A new strategy is the bucket strategy. You have a stock bucket, a bond bucket, and a cash bucket. The cash bucket you keep in your local bank or credit union with a year’s worth of cash. The bond bucket you keep for 2 years of living expenses. Then the stock bucket, you keep the rest. Because the typical bear market is a year and a half, you can weather the bear with your cash and bond accounts. This prevents you from selling stock during a bear market. When you are out of the bear market, you rebalance the buckets.
The Late Frugal
