Top All-in-One ETF – Vanguard’s VBAL

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Top All-in-One ETF – Vanguard’s VBAL

These funds have been called one-stop ETFs, one-ticket solutions, asset-allocation ETFs, and balanced ETFs. For the purpose of this article we’ll call them “All-in-One ETFs”.

Investors have several choices when it comes to all-in-one ETFs. We’ll briefly highlight all of the different options before declaring a winner.

First up is Vanguard, who arguably changed the game for DIY investors (and put robo-advisors on notice) with the introduction of its line-up of all-in-one ETFs. They include:

• Vanguard Conservative Income ETF Portfolio (VCIP) – 20% equities / 80% bonds
• Vanguard Conservative ETF Portfolio (VCNS) – 40% equities / 60% bonds
• Vanguard Balanced ETF Portfolio (VBAL) – 60% equities / 40% bonds
• Vanguard Growth ETF Portfolio (VGRO) – 80% equities / 20% bonds
• Vanguard All-Equity ETF Portfolio (VEQT) – 100% equities

Each of the above ETFs comes with a low-cost MER of 0.25%

Next up is iShares’ asset allocation ETFs:

• iShares Core Balanced ETF Portfolio (XBAL) – 60% equities / 40% bonds
• iShares Core Growth ETF Portfolio (XGRO) – 80% equities / 20% bonds

The iShares funds are expected to have a MER of 0.21%.

BMO also launched three asset allocation ETFs:

• BMO Conservative ETF (ZCON): 40% equities / 60% bonds
• BMO Balanced ETF (ZBAL): 60% equities / 40% bonds
• BMO Growth ETF (ZGRO): 80% equities / 20% bonds

The three BMO all-in-one ETFs come with a MER of 0.20%.

We decided to crown Vanguard the winner of this category due to the breadth of its offerings for the ultra-conservative to ultra-aggressive investor, and everything in between.

I personally switched my previous two-ETF portfolio, consisting of VCN and VXC, to the new 100% equities all-in-one ETF VEQT.

Personal preferences aside, I stand by my statement that most investors should add bonds to their portfolio to smooth out the ride. For that reason, I’ll highlight the classic 60/40 balanced portfolio – VBAL – as the top all-in-one ETF in Canada.

As “set-it-and-forget-it” as investing gets, VBAL offers instant global diversification with more than 12,000 holdings. A fund of funds, VBAL is made up of the following underlying ETFs:

• Vanguard US Total Market Index ETF – 23.8%
• Vanguard Canadian Aggregate Bond Index ETF – 23.6%
• Vanguard FTSE Canada All Cap Index ETF – 17.9%
• Vanguard FTSE Developed All Cap ex North America Index ETF – 13.8%
• Vanguard Global ex-US Aggregate Bond Index ETF CAD-hedged – 9.2%
• Vanguard US Aggregate Bond Index ETF CAD-hedged – 7.2%
• Vanguard FTSE Emerging Markets All Cap Index ETF – 4.5%

One area to highlight is the exposure to both U.S. and global bonds, which most investors can’t get in a typical ETF or mutual fund portfolio.

How to Invest in ETFs

Now you have a list of the best Canadian ETFs, but how do you go about investing in them? That depends on whether you want to be a do-it-yourself investor or want to take a more hands-off approach to investing. Either way, here’s a brief explanation of how to invest.

For DIY investors, you’ll want to open a discount brokerage account. The lowest cost option is at Questrade, where you can purchase ETFs for free and there are no annual fees no matter what your account size. Their other trading fees range from $4.95 to $9.95, and their account minimum is $1,000. If you transfer your RRSPs or TFSAs from another institution, Questrade will cover your transfer fees. See our full Questrade review for all the nitty-gritty details.

Once your discount brokerage account is set-up, you’ll need to fund the account with a contribution from your bank. You can do this with a one-time lump sum or with regular automatic contributions.

From there you’ll want to select your ETF, or portfolio of ETFs, by entering the ticker symbol(s) and purchasing the appropriate number of units. Unless you hold an all-in-one balanced ETF, you’ll need to do your own portfolio rebalancing. Decide on some rules. Let’s say your target allocation is 33% Canadian, 33% U.S., 33% International. You can either rebalance whenever you add new money by contributing to the fund that is lagging behind. Or you can rebalance once or twice a year by selling some of the top performing fund and buying more of the fund with the poorest returns. Buy low, sell high. That’s the name of the game.

For investors looking for some hand-holding through the process but who still want to save on fees, a robo-advisoris worth a look. Robo-advisors, or digital advisors, allow investors to build a portfolio of low-cost ETFs and will automatically rebalance your portfolio as you add new money or whenever your portfolio drifts away from its target allocation. Most robo advisors charge a management fee of around 0.40 – 0.50% to monitor your portfolio.

I’d be remiss if I didn’t mention that if you’re interested in a basic ETF portfolio, you should likely consider one of Canada’s robo advisors, such as Wealthsimple (our top pick) and BMO SmartFolio. These relatively new Fintech darlings are changing the way the financial management game is being played in Canada.

Canadian Investment Guide

Here is the article. 

Part 1 - What is an Exchange Traded Fund
Part 2 - How do ETFs work
Part 3 - Why Invest in ETFs
Part 4 - How to Invest in ETFs
Part 5 - What are Stocks and Bonds
Part 6 - Best Mix of Stocks and Bonds
Part 7 - Best ETFs to Buy
Part 8 - Best Mix of ETFs
Part 9 - Balanced Portfolio Performance
Part 10 - Rebalance Your Portfolio
Part 11 - Reinvest Your Dividends and Interest
Part 12 - Best Trading Strategy

7 - Best ETFs to Buy

You only need three ETFs in your investment portfolio. You already know that the first ETF has the symbol VFV. It contains 500 of the largest companies in the United States, such as Microsoft, Google, Visa, Disney, and Walmart. The name of this ETF is the "Vanguard S&P 500 Index ETF", and it has a management fee of 0.08% every year. So what are the other two ETFs? We will introduce them to you now.

The second ETF has the symbol VDU. It contains 3,900 of the largest companies in developed economies around the world. This includes companies in Canada, Europe, and Asia, such as Royal Bank of Canada, Nestle, Adidas, Samsung, and Toyota. This ETF does not contain any companies in the United States. Therefore it will not repeat your investment in the first ETF. The name of this ETF is the "Vanguard FTSE Developed All Cap ex U.S. Index ETF", and it has a management fee of 0.20% every year.

Finally the third ETF has the symbol VAB. It contains 900 bonds in Canada. It includes mostly Canadian government bonds, such as Federal, Provincial, and Municipal bonds; and some Canadian corporate bonds. The name of this ETF is the "Vanguard Canadian Aggregate Bond Index ETF", and it has a management fee of 0.08% every year.

As you can see, all three ETFs have the phrase "Index ETF" in their names. Furthermore, they are all market-capitalization-weighted. Why is this important? Remember that most investors cannot outperform the index. Thus you should simply invest in the index. And these are the ETFs that let you do that.

You may wonder why all three ETFs are provided by Vanguard. This is because Vanguard charges the lowest management fee compared with other ETF providers. ​For example, BMO and iShares have also created ETFs that invest in the S&P 500 Index. Their ETFs also contain 500 of the largest companies in the United States. Unfortunately they have a higher Management Expense Ratio (MER).

Great work for completing the seventh part of our guide. Now you know which ETFs are needed to create your simple portfolio. Very few people realize that investing like a pro means to keep their investments simple. Thus you have gained a remarkably rare skill. Before you apply this skill, you need to know how much to invest in each ETF. Continue your journey by reading the next part - Best Mix of ETFs

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8 - Best Mix of ETFs

Remember that a simple portfolio, with a mix of 60% stocks and 40% bonds, can perform like the world's best investment portfolios. Therefore you should make your portfolio simple too with the three ETFs that we have mentioned. But how much should you invest in each ETF to create that same mix of stocks and bonds?

Let's start with bonds. Of the three ETFs that we have discussed, only one of them contains bonds. This is the one with the symbol VAB. Thus 40% of your portfolio should be invested in this ETF to create that same bond mix.

Stocks should make up the other 60% of your portfolio. There are two ETFs remaining, and they both contain stocks. The one with the symbol VFV contains stocks in the United States. And the one with the symbol VDU contains stocks in the rest of the world. So how much should you invest in each?

Remember that a market-capitalization-weighted index simply combines all the companies based on the size of each company. Furthermore, most investors cannot outperform the index. Therefore you should follow this simple method as well. The US stock market makes up about half of the global stock market. As a result, half of your stock mix should be invested in the United States, and the other half in the rest of the world.

Your investment portfolio should have 30% in VFV, 30% in VDU, and 40% in VAB. For example, if you have $1,000 to invest, then you should put $300 in VFV, $300 in VDU, and $400 in VAB.

This simple portfolio has an overall Management Expense Ratio (MER) of 0.12% every year. The MER includes the management fees and other expenses that Vanguard needs to operate its ETFs. For example, if you have $1,000 invested in this portfolio, then you will have to pay $1.20 every year to Vanguard.

This MER is very reasonable when you consider the number of investments that you have. In fact, your portfolio contains 4,400 of the largest companies in developed economies around the world. This includes companies in the United States, Canada, Europe, and Asia. In addition, it contains 900 government and corporate bonds in Canada.

Congratulations for finishing the eighth part of our guide. You have achieved something very important. Your simple portfolio only has three ETFs, but it is highly diversified and low-cost. What this means is that you are finally investing like a pro.

Is this the end of your journey? Not yet. You have finished building your new ship. Now it is time to set sail to your paradise island. This will be a long voyage, and you will encounter storms that can drift you off course. Thus staying invested can be a challenge. Fortunately we will help you prepare for those storms. Continue your journey by reading the next part - Balanced Portfolio Performance

9 - Balanced Portfolio Performance

You have finished building your new ship. It is time to start sailing to your paradise island. This will be a long voyage, and you will encounter storms along the way. So you wonder how will your ship perform. It is difficult to predict the future, but we can look at how similar ships have performed in the past. Therefore we can get an idea of how your ship may perform in the future.

Now let's relate everything back to investments. You have finished creating your simple portfolio, which has a mix of 60% stocks and 40% bonds. This mix provides a good balance between growth and safety. As a result, it will help create a smooth journey to your retirement goal. This is why your simple portfolio is also called a balanced portfolio. But how will it perform in the future?

The future is difficult to predict, but we can look at how balanced portfolios have performed in the past. Therefore we can get an idea of how your portfolio may perform in the future. Historically, a balanced portfolio has a 5% annualized return over the long-term. This is based on economic studies* done by TD Bank, one of the largest financial institutions in Canada.

A 5% annualized return may sound small, but you will be surprised by how much your money can grow over the long-term. Imagine that you invest $1,000 and let it grow 5% every year. After 10 years, you will have around $1,630. And after 20 years, you will have around $2,650. As you can see, 5% can make a big difference over the long-term.

In reality, a 5% annualized return does not mean your portfolio will grow exactly 5% every year. For example, during the financial crisis in 2008, your portfolio would have lost around 20%. But right after the crisis in 2009, it would have gained around 20%. Thus the actual return each year can be very different. So how did they come up with that 5% number? Let's answer this with an example.

Imagine that you had invested $1,000 in a balanced portfolio in the beginning of 2008. By the end of 2018, it would have grown to around $1,630. So how did it perform?

Over that 10-year period, your $1,000 grew to $1,630. A quick way to summarize that performance is to calculate the annualized return. In other words, how much does your portfolio need to grow each year, for 10 years, to reach $1,630? The answer is 5%. That number quickly shows the performance of your portfolio from 2008 to 2018. The actual return each year was very different, but overall it had a 5% annualized return. Now you understand how that number was determined.

Furthermore, that 5% annualized return would only have been achieved if you had stayed invested for the long-term, even during a crisis. For example, imagine that you had invested $1,000 in a balanced portfolio in the beginning of 2008. This was right before the financial crisis. If you had panicked and sold your investments during the crisis, then you would have ended with around $800, a loss of $200. And you would have missed the gains in the following years that would have recovered more than your loss.

There is one last question that you may have. During the crisis, your balanced portfolio would have lost around 20%. And then it would have gained around 20% in the following year. How is that considered a smooth journey? Let's compare it with a portfolio that has a mix of 100% stocks. During the crisis, that stock portfolio would have lost around 40%. And then it would have gained around 30% in the following year. As you can see, your balanced portfolio would have created a much smoother journey for you.

Fantastic. You have completed the ninth part of our guide. Now you know what to expect during your long voyage. And when you encounter a storm, you will be prepared to stay invested like a pro. Therefore you can expect a 5% annualized return from your portfolio over the long-term.

Staying invested is the best way to reach your retirement goal. But you need to make sure that your ship does not drift off course. How can you do this? Find out by reading the next part - Rebalance Your Portfolio

* Burleton, D., Dolega, M., & Solovieva, M., CFA. (2016, January). U.S. Long-Term Financial Asset Returns: An Economic Perspective. Retrieved 2016, from https://www.td.com

10 - Rebalance Your Portfolio

Your paradise island is far away. Fortunately you have a compass, and you know which direction it is in. You begin your journey by steering your new ship towards your island. This will be a long voyage, so your ship will drift off course over time. Therefore it is important to check your compass to see if you need to steer back in the right direction.

Now let's relate everything back to investments. Your balanced portfolio has a mix of 60% stocks and 40% bonds. This mix will help create a smooth journey to your retirement goal. Remember that this mix can perform like the world's best investment portfolios. As a result, 60% stocks and 40% bonds is the right direction to your paradise island.

In addition, remember that stocks and bonds tend to move in opposite paths. When stocks go up, bonds go down. And when stocks go down, bonds go up. This will cause your portfolio's mix to drift off course over time. For example, imagine that you created your portfolio one year ago. Stocks went up and bonds went down this past year. Thus its mix might now be 70% stocks and 30% bonds.

Your portfolio has drifted off course, and it needs to be steered back in the right direction. How can you do this? You need to sell 10% of your portfolio from stocks. And then use that amount to buy bonds. This will bring it back to 60% stocks and 40% bonds. This process is called rebalancing your portfolio.

Now you may wonder, how often should you rebalance. And what will happen if you never rebalance? According to research* done by Vanguard, you should rebalance once a year. Otherwise your portfolio may significantly drift off course over time. Let's illustrate this by using the same example from the previous part of our guide.

Imagine that you had invested $1,000 in a balanced portfolio in the beginning of 2008. If you had rebalanced annually, then it would have grown to around $1,630 by the end of 2018. And if you had never rebalanced, then it would have grown to around $1,530 by the end of the same year.

As you can see, you would have ended with $100 more by rebalancing annually. That difference may seem small, but it can become very significant. If you had started with $3,000, then that difference would have been $300. And if you had started with $5,000, then that difference would have been $500. That is your money and every amount helps towards reaching your retirement goal.

Finally why does your portfolio grow larger when you rebalance it annually? The answer is simple. You are buying low and selling high.

To illustrate, let's look back at the example when your portfolio's mix changed to 70% stocks and 30% bonds. This was caused by stocks going up and bonds going down during the past year. Thus you rebalanced by selling some stocks and buying some bonds. Now imagine that another year passed by. This time bonds went up and stocks went down. Thus you would rebalance by selling some bonds and buying some stocks.

As you can see, you are essentially buying low and selling high when you rebalance your portfolio every year. This is why it will grow larger compared with one that is never rebalanced.

Excellent work for finishing the tenth part of our guide. Checking your compass once a year is enough to make sure your ship stays in the right direction. Therefore you do not need to worry about constantly steering your ship. This will help you stay invested like a pro and create a smooth journey to your retirement goal.

Your ship is heading in the right direction to your paradise island. Now you need to make sure that your ship does not slow down. How can you do this? Find out by reading the next part - Reinvest Your Dividends and Interest

* Zilbering, Y., Jaconetti, C. M., CPA, CFP, & Kinniry Jr, F. M., CFA. (2015, November). Best practices for portfolio rebalancing. Retrieved 2016, from https://www.vanguardcanada.ca

Case study: My portfolio idea - VFV, VDU, VAB (series 5 of 10)

June 2, 2019

Introduction

It is my portfolio idea just to borrow from the article Canada retirement guide using three ETF (VFU, VDU, VAB). The blog is related to invest in 60% stocks and 40% bonds. 

Case study

I like to look into the argument and see some statistics related to return. 

Our portfolio invests in 60% stocks and 40% bonds because the returns are significantly more stable over the long-term. This was especially true during the 2008 global financial crisis. The table below compares the yearly performance between a Balanced Portfolio vs Stock Portfolio during that volatile period.

Balanced Portfolio = 60% stocks and 40% bonds
Stock Portfolio = 100% stocks and 0% bonds

2007 to 2010
Cumulative return of Balanced Portfolio: +11.4%
Cumulative return of Stock Portfolio: –3.6%

	2007	2008	2009	2010
Balanced Portfolio	6.8%	–22.0%	21.0%	10.4%
Stock Portfolio	9.1%	–40.7%	31.6%	13.1%

Note: Balanced Portfolio = 30% VFV / 30% VDU / 40% VAB. Stock Portfolio = 50% VFV / 50% VDU.
Sources: Vanguard Investments Canada, S&P Dow Jones Indices, and FTSE Russell index fact sheets.

Why the 60/40 Asset Allocation Rule Is Dead

Here is the link.

Investing in a laddered bond portfolio like the Guggenheim BulletShares defined maturity bond ETFs gives investors "a little yield, a defined maturity price if rates rise and liquidity to switch and go 'all in' to the stock market when the next great opportunity or crash arrives, he said.

"It's hard to convince clients to buy in though," said DeShurko. "The key is that you have to be willing to move out of bonds and into stocks when everyone is saying that is a really dumb idea. Even with pretty bad timing, it isn't so hard to break even with a stock only buy and hold strategy, but you have eliminated a lot of stress."

The premise of a 60/40 stock/bond mix dates back from a strategy devised by pension funds and the mix was intended to produce stable growth with bonds "cushioning" the risks of the volatility in the stock market, said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa.

The 60/40 stock-bond weight rule needs to go on a crash diet

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The classic 60/40 rule — an investor should put 60 percent of their portfolio in stocks and 40 percent in bonds — is popular for a reason: It has a good historical track record of delivering equity-like returns, while lessening the risk of serious annual portfolio drawdowns.

Here are a few basic statistics that prove that point.

Since 1928 — the first year data were available — a 60/40 portfolio of the S&P 500 and 10-Year Treasurys has delivered an average annual total return of 9 percent, or 78 percent of the total return for just the S&P 500 (11.5 percent). After inflation (using annual CPI) this translates to a 5.9 percent average total return for 60/40, or 70 percent of the average real returns for the S&P 500 (8.4 percent).

The 60/40 portfolio saw 19 years with negative total returns during the period from 1928 to 2017 (21 percent of the time). The worst drawdowns for the 60/40 portfolio since World War II: 1974 (-14.7 percent) and 2008 (-13.9 percent). The returns on just the S&P 500 in those years were more than twice the losses of the 60/40 portfolio: -25.9 percent and -36.6 percent, respectively.

Alan Patricof

Here is the wiki page.

Legendary investor Alan Patricof: We're in 'crazy' environment for investing

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Weekly contest 139

June 1, 2019

Introduction

It is my favorite weekly contest. I played the contest, but I could not solve any algorithm in the contest. I spent a few minutes to read last algorithm hard level, I decided not to work on. Even though I thought about time complexity, preprocessing can shorten the time; I moved to the first easy level, I found out that it was not easy for me.

My performance

I spent time to work on negative 2 base addition; I decided to try my luck if I can pass online judge. I came out the idea to solve it, but there is a bug in my code. I could not fix it.

I just could not believe the result. I spent one hour 30 minutes, but I could not solve any algorithm.

Actionable Items

I have to think about how to lower the risk, focus on the easy level algorithm first, and then try to solve the one at least.

If I focus on the hard level algorithm, I should be able to solve the algorithm.

You can`t promise to win every time, but you can make sure you give it all when you step on court. - latishajchan

June 3, 2019

I just wrote the two algorithms in the contest, and also I like to write my thoughts here as well.

To be an algorithm problem solver, I have to learn how to go through those learning tough moments. I certainly have to be humble, and work on getting ideas correctly.

The easy one I should try brute force solution, do not make it too tough to write. Once I have the brute force solution, I do not have any problem to write the code.

The medium level algorithm - add two binary number, I should carefully think about carry and all possible values. Be careful not to get into tough problem because of misunderstanding the problem.

Also it is a good idea to try to solve at least 10 algorithms a week. So I can continue to maintain curiousity and also mental toughness to deal with up and downs in the process.

1073. Adding Two Negabinary Numbers C# so many trial and error in my first practice
1073. Adding Two Negabinary Numbers Use stack to remove leading zero 
1073. Adding Two Negabinary Numbers learn to use next two bit to carry
1071. Greatest Common Divisor of Strings brute force solution missed in weekly contest
1074. Number of Submatrices That Sum to Target write code first and then figure out what is the idea

The Federal Reserve won’t consistently raise rates in 2019: Ray Dalio

Here is the link.

Looming US recession in 2020?

Here is the link.

Fidelity investments - After the global financial crisis - The five key risks to retirement income

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Five key risks to retirement income planing

Longevity
Inflation
Asset allocation
Withdrawal rate
Health care

From the peak of the Canadian stock market in June 2008 to the tough in March 2009, the market declined by about 50%. Even as markets have rebounded from their lows and the global financial crisis and economic recession of 2008-2009 recede into memory, some noticeable scars remain.

3. Asset allocation risk

Exhibit 7 shows the performance of the S&P/TSX Composite Index over the past 41 years. Although the market declined by more than 20% on seven different occasions, it grew substantially over the long term. In fact, the market grew about 46-fold over the past 41 years, an important point to remember for those facing longer retirements.

Balance and persistence

So even in retirement, it seems, the key to long-term success is most likely in a more balanced portfolio - neither all stock, which may carry too much market risk for some investors, nor all bonds and cash, which may have less potential for upside appreciation.

Events - and market behavior - in 2008 and 2009 underline the point. Exhibit 9 illustrates how the value of a balanced portfolio would have fallen in the 2008-2009 market correction. But it also shows how the portfolio's value would have bounced back if the investor had stayed the course.

Exhibit 10

Fidelity Q4 2018 Retirement Analysis: Market Shake-up Impacts Account Balances, but Investors “Stayed the Course” Despite Volatility

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Trends and insights of those saving for retirement across America. 1st quarter - 2019

Here is the article.

Here are some content to read:

While the majority of people are juggling multiple financial priorities, Fidelity analysis shows that more and more have prioritized saving for retirement. From increased participation in Defined Contribution (DC) plans to double digit growth in the percent contributing to an Individual Retirement Account (IRA), it’s clear more people than ever are focused on creating a secure financial future.

DC plan balances

With the recent market activity, balances have increased slightly by 1% in the last 12 months. However, the overall trend remains positive while the majority of employees continued to contribute to their plan2.

ADDITIONAL INSIGHTS2:
• Auto-enrolled employees who have been invested in their DC plan for 10 years, now have an average balance of $111,600.
• Average balances for female participants have more than doubled in the last 10 years, reaching $81,300 in Q1 2019.


Withdrawals

While the goal is to save and invest for the long-term, things like credit card debt, student loans and the cost of housing can make it tempting to withdraw savings, diminishing the power of compound interest over time.

ADDITIONAL INSIGHTS:

• Cash out rates among younger employees remain high, with 42% under age 30 taking a full distribution when changing jobs2. • The most common reason for taking a hardship withdrawal is to prevent eviction/foreclosure. Only 2% of savers take a hardship annually2.

IRA balances

7.4 million people are saving and investing for retirement through 9.4 million IRA accounts where the number of accounts has grown by 6% and average balances have increased 1.8% between Q1 2018 and Q1 2019.

ADDITIONAL INSIGHTS6:

• Female millennials owned IRA accounts increased by 19.5% between Q1 2018 and Q1 2019.

FIDELITY® Q1 2019 RETIREMENT ANALYSIS: ACCOUNT BALANCES REBOUND FROM DIP IN Q4, WHILE SAVINGS RATES HIT RECORD LEVELS

Here is the link.

Staying the Course Results in Significant Increases in Retirement Balances on 10-Year Anniversary of Stock Market Low1

BOSTON, May 9, 2019 -- Fidelity Investments®, a broadly diversified financial services company with more than $7.4 trillion in client assets, today released its quarterly analysis of retirement savings trends, including account balances, contributions and savings behaviors, across more than 30 million retirement accounts. Average account balances rebounded in the first quarter after a slight dip at the end of 2018, buoyed by positive stock market performance as well as record contribution levels to retirement accounts.

10-Year Analysis Shows Significant Growth in 401(k) Accounts, More Balanced Allocation

In light of the 10-year anniversary of the stock market reaching all-time lows during the financial downturn, Fidelity examined the accounts of 1.64 million individuals who have had the same 401(k) account since Q1 2009, and compared their current 401(k) account balance with their average balance 10 years ago. The following chart outlines the overall increase in balances for this group, along with specific analysis for millennials, Gen Xers and boomers5 within the overall population of 10-year continuous savers:

Fidelity’s 10-year analysis also highlighted how the average asset allocation within 401(k) accounts has gradually shifted to become more diversified, which can be partially attributed to the increasing use of target date funds among 401(k) savers. As of Q1 2019, 52% of individuals had all of their 401(k) savings in a target date fund, compared with just 16% in Q1 2009. In addition, a much lower percentage of individuals had all of their 401(k) savings in stocks -- only 7% of individuals had an all-stock 401(k), compared with 15% who had an all-stock 401(k) allocation in Q1 2009. For more information on Fidelity’s Q1 2019 analysis, please click here to access Fidelity’s “Building Futures” overview, which provides additional details and insight on retirement trends and data.

401(k) balances skyrocket in the decade since the market bottom

Here is the article.

What I learn through the article reading:

The S&P 500 is up roughly 320% over the same time frame, or 426% when factoring in dividends.

“Keep your behavior in check, keep your emotions in check, keep investing,” said O’Brien. “It sounds silly, but the best thing for investors who save every payday is for the market to be down every payday so they’re purchasing stocks and bonds on sale.

“That won’t always happen but it’s the ideal situation.”

Here are copy of the article:

Key points:

1. The average 401(k) balance rose by 466% since the market bottom in March 2009.
2. For millennials, the average account rose by nearly 1,800% to $129,800.
3. To make the most of your 401(k), advisors say put enough in to meet your company match and keep investing.

Turns out staying the course pays off.

According to a report released by Fidelity Investments, the average 401(k) retirement plan balance rose by 466% to $297,700, in the 10 years since the March 2009 market bottom.

Millennials, who had average savings of $7,000 in the first quarter of 2009, saw their average 401(k) balance grow to just under $130,000, a gain of 1,762%.

The numbers are surprising, said Michael Gibney, a certified financial planner with Modera Wealth Management in Westwood, New Jersey.

“Once you set it and forget it, people are amazed by how much their balance will grow.”

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Fidelity based its findings on 1.64 million accounts where workers actively contributed and remained at the same company over the decade. The total amount includes both participant and employer contributions.

The eye-popping gains were certainly helped along by the overall market performance. The S&P 500 is up roughly 320% over the same time frame, or 426% when factoring in dividends.

“While the growth of account balances is due to a combination of market performance and savings, both are critical to reaching long term retirement savings goals,” Kevin Barry, president of Workplace Investing, said in the report.

Seeing a big number in your account may be deceiving, warned EVO Advisers’ David O’Brien, a financial advisor who helps smaller companies manage and develop 401(k) plans.

“It needs to have context,” said O’Brien. “Answering that big question of, ‘Am I contributing enough?,’ and, for millennials, ‘Am I contributing it in the right tax bucket?’”

Because contributions are made pre-tax, 401(k) plans offer the upfront benefit of lowering the amount of income subject to taxes.

But eventually you have to pay the piper (in this case, the IRS) and money taken out in retirement is taxed at your ordinary income rate, which for the top bracket is currently 37%.

Blair duQuesnay of Ritholtz Wealth Management in New York suggests splitting retirement savings equally into three buckets. In addition to a 401(k), duQuesnay has clients use a Roth individual retirement account — which is funded by post-tax dollars, making withdrawals in retirement tax-free — as well as a brokerage account. “You’ll have flexibility to manipulate your taxable income in any given year during retirement,” she said.

Rodney Brooks

Here is the profile of USA Today's retirement editor.

Fidelity: Average 401(k) nearly doubles since '09

Here is the article link, written in February 13, 2014.

What I learn through the article

Facts

"No one will complain when account balances go up," she says. But most of that increase — 78% — was due to last year's strong stock market. Just 22% was due to contributions. In normal years, those numbers are closer to 50-50, she says.

The article was written in 2014. 

Fact 1: 78% was due to 2013's strong stock market - balance go up 

Arguments:
"Individuals who cash out of their 401(k) plans are committing the equivalent of investment suicide,"

Thompson said the average cash-out is $16,000. For a 30-year-old, that could mean the loss of $461 in monthly retirement-income cash flow (assuming the person retires at 67 and lives into their 90s.

A few numbers to read:
Average cash-out $16,000
For a 30-year-old, $461 monthly retirement-income cash flow, retired at 67, live into their 90s
$16,000 dollars -> 37 years growth of those income.

Here is the copy of the article

Fidelity Investments' latest report on 401(k)s has both good news and bad news about our preparedness for retirement.

The good: The average 401(k) balance managed by Fidelity reached a record $89,300 in the fourth quarter of 2013. That's a 15.5% increase from a year ago and almost double the low of $46,200 set in 2009.

The number is higher for pre-retirees 55 and older: $165,200.

The bad: More than one-third (35%) of all 401(k) participants cashed out their accounts when they left their jobs in 2013. That number is even higher among younger participants ages 20 to 39.

SAVING FOR RETIREMENT: 5 reasons to up your 401(k) contributions

The increase in retirement account balances is "great news," says Jeanne Thompson, vice president at Fidelity Investments.

"No one will complain when account balances go up," she says. But most of that increase — 78% — was due to last year's strong stock market. Just 22% was due to contributions. In normal years, those numbers are closer to 50-50, she says.

She says Fidelity is very concerned about the number of people who cash out their 401(k)s when they change jobs.

"What's concerning there is many people, when they cash out, I don't think they fully realize the long-term impact," Thompson says. "In the short term, they will get cash, but in the long term, they are missing out on what that money could grow to."

"Individuals who cash out of their 401(k) plans are committing the equivalent of investment suicide," says W. Kirk Taylor, chief investment strategist for 1st Portfolio Wealth Advisors in Vienna, Va. "The combination of penalties, taxes and lost opportunity costs generally have disastrous implications to an investor's long-term retirement plan."

Thompson said the average cash-out is $16,000. For a 30-year-old, that could mean the loss of $461 in monthly retirement-income cash flow (assuming the person retires at 67 and lives into their 90s.

"What you're really losing is a lot more than $16,000, long-term," Thompson says. "When you are younger, it's hard to conceive of that. Five hundred dollars a month can pay for a lot of things."

RETIREMENT: Planning for your future

The other shock for people withdrawing that $16,000 instead of moving it to another employer or private tax-advantaged account: After $3,200 in federal and state taxes and another $1,600 in early-withdrawal penalties, it leaves only about $11,200.

"For truly cash-strapped investors, a better option may be to rollover their 401(k) balance to their new employers 401(k) Plan (if allowed) and take a loan against the rolled over balance," says Taylor. "There are pros and cons to this approach, so investors should weigh them accordingly and consult with a financial professional."

Fidelity is the nation's largest 401(k) provider in the nation. The latest data are based on a review of some 12 million accounts, Thompson says.

Target date fund

June 1, 2019

Introduction

It is time for me to look into target date fund. Why I did not look into target date fund back in 2009 when the stock was low in last 15 years. Instead I chose to sell everything in the stock, I like to figure out what I can do better after 10 years.

Case study

I like to look into my decision making process. One thing I should look into is target date fund. What I can look into target date fund, and how to consider to take one today since I am preparing my own portfolio.

How to manage your 401(k) during periods of market volatility

Here is the link.

1:44/ 5:30

Actionable Items

I need to find good ideas to work on. One thing I can do is to watch CNBC video and then try to figure out what questions I have.


Here is the way I continue to work on my research. I ask myself where those numbers in the presentation come from, so I googled it and then found article related to the presentation and also published by CNBC.

I read the article and then figure out a few things I like to learn and read more about the topics.

How to tell the difference between growth and value

Here is the link.

Finerman's Rules for Women, Life

Here is the link.

Case study: My portfolio idea - VFV, VDU, VAB (series 4 of 10)

May 31, 2019

Introduction

It is my portfolio idea just to borrow from the article Canada retirement guide using three ETF (VFU, VDU, VAB). The blog is related to CAD-Hedged vs Not Hedged. 

Case study

CAD-Hedged vs Not Hedged

Our portfolio invests in ETFs that are not CAD-Hedged because their returns are significantly higher and more stable than ETFs that are CAD-Hedged. The table below compares this historical performance on developed market stocks.

FTSE Developed All Cap Index = developed market stocks

Historical Returns	1 Year	5 Year	10 Year
FTSE Developed All Cap Index (not CAD-Hedged)	–​1.5%	9.8%	10.8%
FTSE Developed All Cap Index (CAD-Hedged)	–7.9%	6.5%	10.4%

(annualized returns as of December 31, 2018)
Note: All returns are in Canadian dollars.
Sources: FTSE Russell index fact sheets.

Actionable Items

I like to learn the concept called CAD-Hedged.