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Why Vanguard’s Balanced Index Could Be An Investor’s Panacea
FYI: You’re sitting at a fancy new restaurant. The ambience is perfect. “Your taste buds will tango,” says the celebrated chef. The back of the menu oozes with promise. We have award-winning chefs. We grow our own organic herbs. We butcher your meat and catch your fish the second you place an order. At some point, you’ve eaten where they promise the world--and the meal fell flat. “If only I had a burrito at a roadside stand,” you later grumble. Such disappointments are probably rare. But in the investment world, rice and beans put most gourmet offers to shame. Regards, Ted http://assetbuilder.com/andrew_hallam/why_vanguards_balanced_index_could_be_an_investors_panacea
Looking at equity/fixed income Morningstar has FBALX at 72% stocks and VBINX at 56% stocks. FBALX should do better in a bull stock market and VBINX should be less risky and do better in a bear stock market. FBALX being actively managed could change their percentage of stocks accordingly, but would they?
I guess the main point of the article was that the investors return in the more conservative VBINX (unlike the fund return) was higher than in FBALX because investors timed the Vanguard fund better.
Which of the two main funds would be found in more company 401k plans and by what percentage? Those data might go a long way in explaining the investor return disparities as I would expect that money to be less likely to jump around a lot chasing returns.
The term "investor" tends to be used too broadly in investment product contexts yet, being that a majority of middle age workers are underfunded in their retirement plans, a 7% return from these products won't get these "investors" very far in accumulating assets. A different question to ponder should be, how can they invest in order to achieve "excess" returns in order to secure a decent retirement lifestyle ( similar to what they've been used to ) ?
An Employee Benefit Research Institute (EBRI) study polled workers age 55 and older who said the following about their retirement savings: 60% have less than $100,000 in retirement savings 43% have saved less than $25,000 36% have saved less than $10,000
Comments
An Employee Benefit Research Institute (EBRI) study polled
workers age 55 and older who said the following about their retirement savings:
60% have less than $100,000 in retirement savings
43% have saved less than $25,000
36% have saved less than $10,000
Further, it is a little known fact that healthcare premiums have risen by a 7% compounded rate over the past 15 years. An inflation adjusted return from a "balanced fund" won't even cover this essential expense. https://docs.google.com/document/d/1UyAulQv9gUgjq5g-TUrs_Wa7lbIEQ3K72StlUVewoKw/edit?usp=sharing
This population will need to produce returns via programs that can produce steeper expected return trajectories with risk mitigation. https://docs.google.com/presentation/d/1Ua-R53o7c588nUr705hY4YaBEcG1qOrNvtonQIwpVws/edit?usp=sharing