Index Your Way To Retirement

Courtesy Pexels.com I have to admit I was excited when Fidelity announced their new Zero Index Funds.  They now offer new Total Market, International, Extended Market, and Large Cap Index Funds with zero annual expenses.  This is a fantastic development for long term passive investors like myself.  Over the long term, the expenses charged by fund managers can significantly eat into an investor’s returns.  For instance, $10,000 invested in the an S&P 500 index fund over 30 years at an 10% rate of return will have a final portfolio value of $174,494.02.  If that mutual fund were to charge 1% in fees, the annual return lowers to 9%.  After 30 years the portfolio would be worth only $132,676.78.  That’s a significant loss incurred by the investor.  So why is Fidelity foregoing profits to help out the little guy investor?  Trust me they’re not-the idea is steal market share from other brokerages like Vanguard and Schwab.  Also, most investors don’t just invest in a single fund

Photo courtesy Pexels.com Every few months the financial press releases an article on the increasing number of 401k millionaires.   “Number of 401k Millionaires reaches all time high”   “41% increase in number of million dollar 401k accounts”.   Th e standard advice is offered on achieving this milestone-401k millionaires stay at the same job for years, are high earners, save enough to get a company match-in fact up to 15% of their earnings, and start saving at an early age.   Easy right? Of course the ~150,000 401k millionaires at Fidelity represent less than 1% of their total number of retirement accounts.   If it’s so easy why is the average American’s retirement savings only $95k? The average salary in the United States is $56,000 before taxes.   Federal taxes drop that number down another 20% (assuming you live in a no state income tax state). After housing-$12,000 rent, transportation $9,000, food $6,000, health care $4,000, and miscellaneous expenses $5-$10,000 there’

US REIT Index Fund-FSRVX 1 Year Performance Towards the end of January I decided to rid myself of my REIT index fund, FSRVX, and exchange half of it for an Emerging Market Fund, FPMIX, and a Total International Market Fund, FSGDX.  At the time I rationalized that I had very little international exposure in my portfolio and I was tired of my REIT fund’s under performance-I believe it was down around 6% at the time I sold.  If I’m honest, I was probably chasing last year’s outstanding returns for international funds. The financial news media’s chatter about Amazon being the death of the American Mall, and thus Retail REITs, finally caused me to give in.  And of course, six months later my Emerging Market fund is down -7.7% YTD, my Total International Fund is down -4.8%, and the REIT I sold is up 1.2%.  So you see-I sold my REIT when it was down, locking in losses, and bought two international funds just as they were about to lose value.   Emerging Market Index Fund - FPMIX

I know intellectually that I shouldn’t pay attention to the day to day whims of the market but it feels so good to see the market finally headed in the right direction again-up! Yay! As you are no doubt aware the market has been in correction for the past 3 months with the S&P 500 dropping from a peak of 2872 January 26 to a low of 2581 February 26. Since then it’s been pretty much been going sideways until Friday of last week. Today the S&P is at 2722-not back at its January highs but headed in the right direction (see pic below-I’m so not a fan of the new Google Finance format BTW-hard to do long term research). I’ve heard full year forecasts of 2800-3000 for end of year 2018-here’s hoping. Google Finance Now I know what you’re thinking-I thought we were buy and hold investors, over the long term the market goes up 8-10% a year, and that we should celebrate these opportunities to buy stocks at cheaper prices? All true-but it I have to admit it’s psychologically dishea

Year to date the S&P 500 is slightly negative for the year closing  at 2669 last Friday versus 2695 January 2.  Ugh.  So disappointing after 2017's steady climb.  But just because the market is flat to down on the year doesn't mean I've stopped investing.  I've kept up my program of regular investments in index funds while telling myself that that I am saving for twenty to thirty years for now-not today or tomorrow-and that the day to day fluctuations of the market don't matter.  And since the market goes up over the long haul I'm actually buying shares more cheaply than I would be in a steadily rising market. I know all of this but it's still disheartening not to see much progress in my account. Or even seeing my balance drop immediately after contributing.   Boo! I feel like my savings have been hovering at the same level plus or minus two to three thousand dollars forever!  I was hoping that earnings season would help the market get out of its rut

Ugh.  This year has been psychologically brutal for buy and hold investors.  Between February’s sell off and this week’s repeat on US/China trade war concerns-there has been a lot of volatility in the market.  The S&P 500 is currently down below November 2017 levels wiping out all January 2018 gains. Don’t panic-remember we are investing for the long term.  S&P 500 March 2018 YTD At least, for now, we are still positive versus this time last year. S&P 500 1 Year Performance March 2018   None of this short term volatility matters-even if the US heads into a recession (after all this is the second longest bull market in history-it’s time) in the next few years. These market dips are a buying opportunity.  Basically the market periodically goes sale.  If the S&P is at 5000 in seven years-would you rather have bought at 2500 or 2800?  Remember-we are investing for the long term, 20-30 years.  The market goes up over long periods of time

Photo Courtesy Pexels.com My company allows me to purchase stock at its price on the first or last trading day of the year-which ever is lower and at an additional 15% discount.  I buy the stock through monthly payroll deductions and receive my shares the first few days of the following year.  This is a great deal, especially in years when my company’s share price appreciates-my company’s stock was up over 20% in 2017!  This meant after my 15% discount and taxes I realized a 30% return.  Happy New Year to me! Discounted company share purchase plans can be great investments but only under certain conditions: You don’t have alternative investment options that would give you a higher rate of return than the discount (minus taxes) You don’t have debt at a higher interest rate than the discount your company is offering Your company will immediately allow you to liquidate your purchased shares Obviously, if there is a higher return vehicle you could be investing in or yo