Index Your Way To Retirement

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-while they’re perusing the F…

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”.  The 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’s not much left for retirement savings.Add in the un…

Happy 4th of July!  

I'm continuing my journey to financial freedom despite this depressing market. I thought I'd share a portfolio update as we go into the second half of the year. 








July 2018 YTD Portfolio Performance: Dec 31, 2017 Balance: $234,975.18July 4, 2018 Balance: $265,376.22Total 2017 Contributions (including employer): $26,294.89Allocation: 8-10% bonds depending on the month, delta stocks2018 July YTD Total Return: 1.75%Old Target Date Fund Return including fees: 0.71%FUSVX S&P 500 Index Fund YTD Return: 2.94%
Ugh 2018 Market Returns!  Technically, because of all the volatility this year-I've been able to pick up shares on the cheap...but they keep giving back gains a few months later.  Not that this year's returns matter because I am investing for the long term. At least I’m beating my crappy old target date fund-but I still underperformed the S&P 500. Basically my contributions have made up most of my portfolio gains so far this year.  These are the …

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.  


Learn from my mistake-buying high and selling low is always a losing proposition.  Thankful…

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.
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 disheartening to see my bi…

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 b…

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. 


At least, for now, we are still positive versus this time last year.


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.  Look at the S&P 500’s stellar performance since 1987.


How am I managing seeing my savings fall thous…

It has been a little over a year since I decided to take control of my investments through passive investing.  As mentioned in my first post, I got serious about my financial future after I realized how much the target date fund in my 401k had underperformed the S&P 500 since I started at my company back in 2013.  It was a bit trial and error at the beginning figuring out which index funds to invest in but eventually I landed on a mix of large, mid, and small cap stocks along with REITs and bonds that I was happy with.  Also, I finally consolidated all of my old 401k’s into IRAs at my brokerage.  And the results are in…
Jan 1, 2017 Balance: $158,659.48Dec 31, 2017 Balance: $234,975.18Total 2017 Contributions (including employer): $36,027.77Allocation: 8-10% bonds depending on the month, delta stocks-I don’t hold much cash2017 Total Return: 20.69%Old Target Date Fund Return including fees: 22.21%
Okay-ugh…I missed out on 1.52% return had I just invested in my old target date fund. …

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 offeringYour company will immediately allow you to liquidate your purchased shares
Obviously, if there is a higher return vehicle you could be investing in or your company is offering a 10% discount but you ha…