Thursday, March 26, 2015

Simplified Retirement Investing

The Animation Guild is in the middle of 401(k) enrollment meetings, and we'll be out over the next several weeks with booklets, information, and our sunny smiles.

I was telling a sizable group at Fox Animation this afternoon how 92% of TAG 401() Plan's 2450 participants are in Vanguard Target Date Funds, and that for most of them this is a solid option because ...

... You don’t need a lot of funds to be diversified. You could achieve diversification by investing in just three mutual funds that cover virtually the entire stock market. For example, a diversified portfolio might include investing equal amounts in just three broad exchange-traded funds, including total market U.S. equities, total market international equities and total bond market. ...

If you want to further simplify your investments, you can use a target-date fund. This would allow you to go from three funds to just one. Target-date funds are sometimes referred to as a fund of funds, because it is a single fund that holds positions in several funds. For example, Vanguard’s Target Retirement 2030 fund holds five mutual funds including four stock funds and one bond fund. Just as is the case with the three fund portfolio, diversification is achieved through a small number of broad-based funds. But all you need to do is invest in a single all-encompassing fund and you’re done.

The longer I do this, the more I subscribe to "Don't let the quest for the perfect plan stand in the way of a good plan."

There is always something better than what you're holding. The problem is you don't know what it is until after the fact, and it's pointless to chase returns ("skating to where the puck is") because those great results are yesterday's news. Far better to cobble together a workable plan, execute it and then stick to it. For most people, this means finding a plan that is simple and easy to do.

Which means a single fund that holds the whole market, or a few broad-based funds that encompass everything (see above).

But to build wealth and/or retirement savings, you've got to start the process and then keep at it.

Contribute to investment accounts.

Tuck part of your wages into a 401(k).

Lastly, put money away into a Roth IRA. The wife and I have been doing these things for thirty-plus years, even when we could barely scrape two nickels together.

We urge you, beg you to get started on this project. Begin by checking here. Twenty-eight years from now, you'll thank us.


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