Investing General Discussion

sliverstorm said:

This is the right question to ask, and I think the answer might surprise you. Let's take a look at this Vanguard 2065 fund. Below is its composition (e.g. these are the 4 "funds" that the target retirement fund has picked and their relative weights)
View attachment 505212

So Vanguard funds for - Domestic Stocks (VSMPX): 54%. International Stocks (VGTSX): 36.3%. Domestic Bonds (VTBIX): 6.9%. International Bonds (VTILX): 2.8%.

Let's look at the performance of each of those:

Fund	YTD Returns	Weighting	YTD Contribution (Returns x Weighting)
Domestic Stocks (VSMPX)	24.02%	54.0%	12.9708%
International Stocks (VGTSX)	12.09%	36.3%	4.38867%
Domestic Bonds (VTBIX)	5.26%	6.9%	0.36294%
International Bonds (VTILX)	9.15%	2.8%	0.2562%
Total			17.97861%

Boy, it looks like those Domestic Stocks are really killing it. Does Vanguard have some secret blend that is allowing it to achieve this incredible performance?

No, it's basically just the S&P500:
View attachment 505213

So Vanguard took your money, invested some of it in the S&P500(ish), and then put some in international stocks and bonds which had a lower return.

So if you really wanted to outperform the retirement fund, you could have picked ONE thing yourself--SPY (the S&P500 ETF), and gotten an extra 5% this year.

That said, I'm not saying Vanguard 2065 is garbage. Setting international aside, those bond funds making 5.26% and 9.15% aren't necessarily "underperforming", they are just much less risky than stocks and therefore are providing a lower return as a result. On a risk-adjusted basis, they're probably performing fine relative to the S&P 500. If the market had collapsed instead of blown up this year (see 2022), those stable single percentage gains from the bond funds would still have been there, and you would have come out a huge winner. The 2065 fund probably handily outperformed S&P500 last year, but on average it will return less.

It is you, as an investor, that has said "I want a lower risk profile, and therefore I am willing to take a lower return by investing my money in safer but lower return assets".

Unless you are in the 50+ age range, I think this is a massively detrimental position to take and will have enormously negative impacts on your long-term wealth.

For idiots like me who can't play fucking Geometry Wars with price charts, my single largest earnings potential is my ability to absorb higher risk due to my (relative, 35ish here) youth + financial situation (money you can invest and never need to draw on until retirement) and reap the larger expected returns that this brings. Your risk profile now is what will define your long-term wealth. You could buy nothing but 20-year Treasuries, earn 4% for the rest of your life, and from a risk-efficiency perspective, you would have a perfect score. But obviously, you would have left what I expect will be literal millions of dollars on the table by not taking full advantage of your ability to absorb short-term risk.

Back off my soapbox and on Vanguard: That bond mix is only going to increase each year. This is what the 2030 retirement fund looks like now:
View attachment 505214

So now is the time to decide if you want to be in bonds at this stage of your life. Maybe so! But I would bet if you're looking 35 years out for retirement, you'd rather be risking more to make more unless you truly have a use case for an "stable" 10% of your portfolio, or you have a thesis about a coming crisis.

So basically:

1. The fund is doing well because everything is doing well
2. You could very easily have gotten a higher RETURN yourself by taking on more RISK. Stocks vs. bonds is the quintessential question here.
3. Now is the time to decide what you want to do with respect to #2
4. If you read "more risk" and immediately think about 300% returns on Life Bank Corp or buying near-expiry options for pennies on the dollar, stick with your financial adviser.

This is long enough, so I'll save my thesis on domestic vs international stocks for another time.

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Foler said:

So I’m looking at my 401k and it seems like my employer limits options as to what funds I can choose. However, my 401k which is fidelity managed offers me the option to open a brokerage link account which on the surface seems like I could use for my 401k. Is anyone familiar with this?

https://clearingcustody.fidelity.com/app/proxy/content?literatureURL=/967373.PDF

Also for reference these are employer options View attachment 505307

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Mist said:

View attachment 505306

This was a good trade but I should have bought a lot fucking more.

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Sanrith Descartes said:

Yes.
401ks are always limited in the choice selections. It's why some 401k plans suck. The options are all bad.

Brokerage link lets you manage like 50% of your 401k. Use it IF you don't have a S&P500/total market fund option in your 401k. If you do then just through all your money into it.

Edit: your plan has an S&P 500 option. It's the play. Vanguard Inst 500 Index Trust is the S&P. Use it.

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Blazin said:

If I had to make a choice with that list I would do either: 100% VANG INST 500 IDX TR
or 80% VANG INST 500 IDX TR and 20% VANG SM VAL IDX INST

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