Most if not all 529 savings plans allow you to use the money to pay for most expenses at essentially any (major) university in the world. This is distinct from prepaid plans, but I was never considering those anyways. I'm not concerned about penalties - you can reassign the beneficiary to another family member if, for example, child #1 gets a full ride at MIT as expected. All I want is some advice on how to choose among the many varied plans.Originally Posted by GGT
While we're talking investment, I was wondering what you guys think about broader investment allocation. At my stage in life, I'm allocated fairly aggressively, but I'm feeling less than excited about my broad portfolio's performance recently. Essentially, I have a heavy weighting to international stocks (about 45% of my whole portfolio), because it ostensibly spreads risk and volatility around and might pick up strong growth in some emerging markets. (The rest is almost entirely in various US index funds with essentially no exposure to bonds.)
My issue is that even if this works in theory, I have grave doubts about growth and profits in most of the world's capital markets outside the US for the foreseeable future - a huge debt overhang and continuing deflation/growth worries in the eurozone and Japan, anemic growth in many developing markets due to the commodities crash and other secular factors, etc. US equities, while looking frothy and overvalued, are at least based on solid profits and encouraging economic news... the same couldn't be said for most other markets.
What do you guys think? Given that my investment horizon is on the order of 35-40 years, should I just stick with this strategy and buy international exposure on the cheap? Should I rebalance towards a more domestic-heavy equity weighting?
Does investing in a variety of international stocks really spread risk? Do we believe that the kind of international events or conditions that affect economic performance in some developing countries has little to not effect in other developing countries? It doesn't help that the parts of the developing world that aren't batshit insane have generally achieved that magical level of development from which it is becomes very difficult to pursue consistent economic growth (curse of middle income). I could see solid economic growth in India and Vietnam (from countries with a decently-sized population), though those countries are not without major risk. But Latin America either falls into the middle income or batshit insane category. Their main likelihood of growth derives from high resource prices, which aren't exactly sustainable. From Africa, there's South Africa, but who else isn't either poor, entirely incompetent, or on the verge of civil war? In Asia, there's no way I trust my money with Bangladesh or Pakistan. That leaves China, which has huge prospects for growth, but also lots of question marks; I could see China triple its GDP in the next 30, but I could also see its GDP stay at the current level 30 years down the line (too much political risk).
Hope is the denial of reality
International != developing. By value, the bulk of international markets are developed ones in Japan and Europe. That's where a big chunk of my international exposure is - and it's certainly true that those regions don't always move in lockstep with US equities, which should smooth out returns in theory. The concern is whether it will also lower overall returns because of long term secular problems in those economies.
Similarly, that chunk of my international exposure that sits in developing economies essentially only gets into relatively open economies - ones open to foreign ownership, which is already selecting for a better class of equity. I have no doubt that this exposure is riskier than the S&P 500, but the potential returns are also much larger. I feel like it's myopic to ignore the fact that, over the next 30-40 years, the majority of global growth by value is going to happen in these less developed markets. Furthermore, even with increasing global capital flows and links between economies, the linkage between US profits and equity prices and those of, say, the Phillipines, is not that tight. That being said, my question is focused on the immediate future (say, 5 years), and whether there's really much scope for optimism in these economies. I have my doubts, as you do, but also wonder if I'm really just trying to time the market.
Buy low, sell high. If you begin reducing your holdings in international stocks and buy more US index funds, you will be doing the exact opposite. With your investment window, it would be stupid. Europe & Japan WILL recover, barring some horrible global catastrophe, and probably quite well, and probably BEFORE you need your retirement money. And US stocks are riding VERY high, probably overdue for a big correction. Buying cheap in international markets and/or staying in them while they sink and flounder *feels* horrible, but you don't invest based on how you feel or for short term ups and downs.
The Rules
Copper- behave toward others to elicit treatment you would like (the manipulative rule)
Gold- treat others how you would like them to treat you (the self regard rule)
Platinum - treat others the way they would like to be treated (the PC rule)
The problem with buy low and sell high is that there's no inherent reason why something that's doing poorly won't get even worse or something that's doing well won't do even better. It's only an issue when one is clearly overpriced and the other is clearly underpriced. The idea of regression to the mean doesn't really apply in an investment context (at least not over the long term).
Hope is the denial of reality
It's all about the time window and probability, right? Europe and Japan may not recover in the next 40 years, but how probable is that? Meanwhile those investments are cheap and the potential up-side (in that time window) is large. On the other hand US stocks are doing wonderful and have been for quite some time. No, they may not drop any time soon and they may not go up much more either, but historically don't long run ups often end in corrections? Is it smart to buy big very deep into a long run up like this? Hard to know for sure, obviously, but IMHO I think it would be a mistake to shift out of Europe & Japan into the US at this time. Probably LOTS of people are doing just that right now, helping to drive up the US market even more, and is it smart to follow the lemmings? Maybe, maybe not.
The Rules
Copper- behave toward others to elicit treatment you would like (the manipulative rule)
Gold- treat others how you would like them to treat you (the self regard rule)
Platinum - treat others the way they would like to be treated (the PC rule)
So what you're saying is that you'd put your spare cash in Japanese and European index funds?
"One day, we shall die. All the other days, we shall live."
Okay, this is more or less the debate I have had in my head already.
Yes, the US may be at high valuations and poor recent performance in the rest of the world might herald a better-performing future. Yet if their malaise is tied to a longer term problem (as it almost certainly the case given fiscal/monetary policy and demographics, at least in the eurozone and Japan), then a portfolio overweighted into these stocks might still underperform a more US-heavy portfolio. Ditto for concerns about emerging markets - the middle income trap et al are very real concerns.
There's another issue that while my overall investing horizon is on the 30-40 year time frame, my asset allocation will get more conservative over time (starting in, say, 5-10 years), meaning that if underperformance in international markets continues for at least that long, I might have to eat the loss when I rebalance to a more conservative allocation with a heavier domestic weighting mixed with some bonds. It's entirely possible that Europe and Japan could have lost decades and that the commodities supercycle could screw over the developing world for at least that long.
Wouldn't many American stocks be expected to reap the benefits of any positive developments in the European or Chinese economies?
"One day, we shall die. All the other days, we shall live."
Are you contributing regularly, say with every pay check? If so, adjust the contributions to reflect more of what you're looking for. This avoids selling your international stuff at a loss to buy more US stuff at top dollar. On the other hand if these investments are something exposed to capital gains taxes you might want to book some losses in those international funds to offset any capital gains, giving you some tax relief if you want to sell some of your winners. I know you can carry over those losses for several years at least so you might even get to use them in your rebalancing.Okay, this is more or less the debate I have had in my head already.
Yes, the US may be at high valuations and poor recent performance in the rest of the world might herald a better-performing future. Yet if their malaise is tied to a longer term problem (as it almost certainly the case given fiscal/monetary policy and demographics, at least in the eurozone and Japan), then a portfolio overweighted into these stocks might still underperform a more US-heavy portfolio. Ditto for concerns about emerging markets - the middle income trap et al are very real concerns.
There's another issue that while my overall investing horizon is on the 30-40 year time frame, my asset allocation will get more conservative over time (starting in, say, 5-10 years), meaning that if underperformance in international markets continues for at least that long, I might have to eat the loss when I rebalance to a more conservative allocation with a heavier domestic weighting mixed with some bonds. It's entirely possible that Europe and Japan could have lost decades and that the commodities supercycle could screw over the developing world for at least that long.
The Rules
Copper- behave toward others to elicit treatment you would like (the manipulative rule)
Gold- treat others how you would like them to treat you (the self regard rule)
Platinum - treat others the way they would like to be treated (the PC rule)
Who are you talking to? Me? I have some money in broad based international funds, much more in the US market. What kind of idiot would be heavy in Europe and Japan these days, for fuck's sake!?!So what you're saying is that you'd put your spare cash in Japanese and European index funds?
The Rules
Copper- behave toward others to elicit treatment you would like (the manipulative rule)
Gold- treat others how you would like them to treat you (the self regard rule)
Platinum - treat others the way they would like to be treated (the PC rule)
Buy low, sell high you said
"One day, we shall die. All the other days, we shall live."
The question isn't whether they'll recover or not; it's whether their economies will grow faster than America's. I have no reason for believing that (especially for Japan).
I also have no doubt that US stocks will face a correction. But we're talking about investing long-term, no?
Hope is the denial of reality
It's also about current conditions and timing a big move. Wiggin is contemplating making a big shift in strategy, and the question is whether it's a good idea to sell holdings that are down to buy holdings that are up, especially when those that are down have a likelihood of turning around and those that are up are way up. Not sure how down the Europe markets are, but that should influence the decision too.
Europe's extended downturn could be an opportunity to make gains in excess of the long term average. A savvy investor with a little money to risk should be looking into selling a bit out of the US and buying into the European market. Then when the European market recovers in a few years, sell and get back into the US market to take advantage of that long term faster growth you are betting on - or not depending on conditions...
The Rules
Copper- behave toward others to elicit treatment you would like (the manipulative rule)
Gold- treat others how you would like them to treat you (the self regard rule)
Platinum - treat others the way they would like to be treated (the PC rule)
Absolutely!Buy low, sell high you said
The Rules
Copper- behave toward others to elicit treatment you would like (the manipulative rule)
Gold- treat others how you would like them to treat you (the self regard rule)
Platinum - treat others the way they would like to be treated (the PC rule)
This is all tax-advantaged money; we don't max out our tax-deferred options (and tax free options) yet, so every dollar of long term invested money is protected from capital gains taxes and the like. We rebalance every 6-12 months automatically, so changing new contributions will only work for so long without revisiting the entire strategy.
Anyways, very little of our money would currently have a capital loss if sold right now - we only started investing in earnest in 2009.
You do realize that by value, the biggest part of broad based international funds is in European and Japanese markets, yes?Who are you talking to? Me? I have some money in broad based international funds, much more in the US market. What kind of idiot would be heavy in Europe and Japan these days, for fuck's sake!?!
I was joking.
The Rules
Copper- behave toward others to elicit treatment you would like (the manipulative rule)
Gold- treat others how you would like them to treat you (the self regard rule)
Platinum - treat others the way they would like to be treated (the PC rule)
Excellent; I was a little unclear on that point.
Your investment strategies have taken a new level and nuance since you became a new father. Right?Okay, this is more or less the debate I have had in my head already.
Yes, the US may be at high valuations and poor recent performance in the rest of the world might herald a better-performing future. Yet if their malaise is tied to a longer term problem (as it almost certainly the case given fiscal/monetary policy and demographics, at least in the eurozone and Japan), then a portfolio overweighted into these stocks might still underperform a more US-heavy portfolio. Ditto for concerns about emerging markets - the middle income trap et al are very real concerns.
There's another issue that while my overall investing horizon is on the 30-40 year time frame, my asset allocation will get more conservative over time (starting in, say, 5-10 years), meaning that if underperformance in international markets continues for at least that long, I might have to eat the loss when I rebalance to a more conservative allocation with a heavier domestic weighting mixed with some bonds. It's entirely possible that Europe and Japan could have lost decades and that the commodities supercycle could screw over the developing world for at least that long.
After an Asian trip, I got all pensive about demographics and realized that Europe + Japan is a huge part of most "international" stock funds. The Chinese stock market is sort of a deck of cards, which leaves a few other places like South Korea, Australia, Singapore, Thailand, South America, etc. Basically made me nervous about going too heavy outside of the US, where at least I have a better understanding of all the elements in play.Okay, this is more or less the debate I have had in my head already.
Yes, the US may be at high valuations and poor recent performance in the rest of the world might herald a better-performing future. Yet if their malaise is tied to a longer term problem (as it almost certainly the case given fiscal/monetary policy and demographics, at least in the eurozone and Japan), then a portfolio overweighted into these stocks might still underperform a more US-heavy portfolio. Ditto for concerns about emerging markets - the middle income trap et al are very real concerns.
There's another issue that while my overall investing horizon is on the 30-40 year time frame, my asset allocation will get more conservative over time (starting in, say, 5-10 years), meaning that if underperformance in international markets continues for at least that long, I might have to eat the loss when I rebalance to a more conservative allocation with a heavier domestic weighting mixed with some bonds. It's entirely possible that Europe and Japan could have lost decades and that the commodities supercycle could screw over the developing world for at least that long.
Yes, but there's also issues around taxes, currency, etc. to consider. If my Yurp and Amerikan stock portfolios appreciate at the same rate, but the Dollar appreciates substantially against the Euro...that's a problem. That alone will really hurt Wiggin.
Yeah, people don't think in value terms much, when they really should. I'm not keen on resource-based markets like Australia (or Canada!) and outside of Japan and Europe there's precious few large capital markets - SK, of course, and Taiwan, but not a whole lot else. Emerging and frontier markets just don't have much available to invest in, China still has draconian capital restrictions... it's a real mess.
I do think that demographics and catch-up growth is an extraordinarily powerful force in the long term, and that money invested in frontier/emerging markets will eventually reap significant rewards... I also have a great deal of confidence in the US economy's resilience, diversity, and innovation. It's everyone in between that I'm not so sure about. One would think than given recent underperformance (and fundamentally sophisticated economies), Japan and the eurozone are due for a rebound eventually. But then I consider that maybe they really are in for a secular stagnation - lost decade following lost decade, where economies just eke out marginal growth in lowflationary or deflationary settings. That would be a disaster for markets, and it seems like a real possibility.
I'm less concerned about this. A dollar appreciation also hurts domestic (US) profits significantly due to the international nature of most markets nowadays... and helps European/Japanese exporters. So to some extent owning a diversified portfolio takes on some currency risk but mitigates other risks. I'm not exactly buying lots of securities denominated in baht.Yes, but there's also issues around taxes, currency, etc. to consider. If my Yurp and Amerikan stock portfolios appreciate at the same rate, but the Dollar appreciates substantially against the Euro...that's a problem. That alone will really hurt Wiggin.
So, things have gotten ugly. I have deliberately not invested much cash over the past ~9 months now, as asset prices just kept on climbing far far beyond the net growth in the economy. What I can't figure out is if the asset bubbles are finally collapsing or this is just a more narrow correction.
I think I'm most hopeful for rate increases, as we'll be in a more normal world where I can have a balanced portfolio without buying bonds that I know will never be more expensive.
WANT BONDS PLS.
Considering short-term bond funds.
I'm not as concerned. There needs to be some perspective - the market was overdue for a correction given valuations that were creeping upwards, but I don't see a major crash coming. The US economy is, by most indicators, doing reasonably well - growth is decent, employment is improving (even with worryingly low workforce participation rates), productivity is up, housing and financials looks decent, and we're even starting to see wage growth. Even with the hit to the energy sector, low oil prices are an overall boon. I just don't see there being much cause for concern that we're facing a real crisis; even though valuations were a bit high, they weren't stratospheric in a way that would suggest bubble territory - also, I don't think leverage is all that high right now, so it's less of a concern. I think high asset prices had more to do with low interest rates and low investment, leading to a savings glut that got directed into assets. Certainly less than ideal, but it has different dynamics than a debt-fueled bubble.
Now, the bears might argue that if China is going down the tubes, that will have serious repercussions for the global economy, including US growth. There's two reasons why I'm less impressed about this line of reasoning. First, China is not actually doing all that badly - growth is slowing in a measured manner, the government is slowly cleaning up some of the more worrying aspects of the economy (liberalizing exchange rates, curbing speculation in the housing market, addressing large amounts of local government debt, etc.), and asset prices are just coming down from crazy bubble territory into something more approaching reality. I'm concerned about their intervention in the markets to try and support asset prices, but I don't think we're likely to see a rout in financial markets translate into a broader malaise in China. The total amount of assets in the market in China is quite small as a proportion of GDP, and banks etc. are well capitalized. I don't see this as a repeat of the 97-98 Asian financial crisis, even with expected Fed tightening in the near future.
Secondly, even if China is headed into uncharted economic territory, I think the effect on the US will be muted. Our imports are likely to get cheaper (producer prices in China have been consistently falling) and we'll probably see some ripples in our financial markets, but the main causation lines still run from the US to the rest of the world (i.e. the US sneezes, and everyone else gets a cold). I have no doubt that poor growth in China, like in the eurozone, will continue to be a bit of a weight on the US economy, but it won't be really dramatic. There are a few sectors that might get hurt badly - the auto industry, for example, or other exporters with big Chinese markets (E.g. Apple). Even so, it won't be a total crash, more of a managed decline.
All in all, I think prudence and patience is the name of the game here. Once valuations get into bargain territory, I'm going to shift some cash into stocks, but otherwise I'm not changing all that much. I think that bonds are a one-way (bad) bet, and will continue to be so for quite a while. Even with a Fed increase, holding bonds to maturity is likely to barely beat inflation, and holding bonds for trading is likely to lose capital as the general trend of rates is upwards. That will change, eventually, but we're far from a 'normal' bond market. For that matter, I question whether we're facing a 'new normal' of relatively subdued interest rates due to underinvestment and oversaving coupled with poor growth across much of the developed (and a good chunk of the developing) world. I'm not sure I envision a Japan-style future for the Treasuries market, but I think there is a case to be made for interest rates staying lower than historic levels through at least another business cycle. There are some higher yields out there, especially with corporate issuance, but I have my doubts that these yields are high enough to justify the risk - investors have been throwing money at corporate bonds with little heed paid to default risks.
"When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)
My thoughts on the last few days of "trading" boils down to this: the US stock market is disconnected from any real economy. And the Chinese stock market is even MORE disconnected. So why did our "experts" in the financial/investment sectors lead a massive sell-off?
The day traders, speculators, high-frequency traders, math quant algorithms, and hedge funds ruined things for everyone when they "sold" China's double-digit growth, even though they suspected it wasn't based on facts. They pumped Asian stock prices and helped build an asset bubble.
It's one thing to say that China's economy is a "state-driven" command/planned economy that's trying to incorporate "free market" principles in a hybrid fashion.
It's another thing when our "Freee Markets" mean retirees lose their pension benefits, or young people are duped into thinking their "educational debt" is a smart financial investment, and the only beneficiaries are the people rich enough keep their shorts on when the tide goes out.
Last edited by GGT; 08-26-2015 at 05:08 AM.
As usual, your views are entirely disconnected from reality. Seriously, how can you say so many factually incorrect things in so few sentences?
Well.....
Actually I agree with GGT on most of that...
> young people are duped into thinking their "educational debt" is a smart financial investment
Yup..
> They pumped Asian stock prices and helped build an asset bubble.
Definitively a bubble based on China's stock market growth pre-crash.
> the US stock market is disconnected from any real economy.
Yes and no.... it depends on a vast variety of factors. Money supply is crucial...
That's a pretty big reason to reconsider your views.
The market has fallen based on future expectations of Chinese growth, growth that has a substantive (though not overwhelming as wig says) effect on the US economy.
There was a giant bubble. Prices of stocks were unrelated to the underlying economic conditions in China. If anything, this correct puts the two closer in line.And the Chinese stock market is even MORE disconnected.
I could find you an investment expert that predicted 10 out of every 2 recessions.So why did our "experts" in the financial/investment sectors lead a massive sell-off?
Complete and utter BS. Everyone is selling China because China had a huge unsustainable bubble. This has absolutely nothing to do with the groups you mentioned. You really need to stop starting with the conclusion and then using whatever convoluted BS comes to your mind to connect reality to that pre-existing conclusion.The day traders, speculators, high-frequency traders, math quant algorithms, and hedge funds ruined things for everyone when they "sold" China's double-digit growth, even though they suspected it wasn't based on facts. They pumped Asian stock prices and helped build an asset bubble.
Relevance to the topic? 0%, as usual.It's another thing when our "Freee Markets" mean retirees lose their pension benefits, or young people are duped into thinking their "educational debt" is a smart financial investment, and the only beneficiaries are the people rich enough keep their shorts on when the tide goes out.
Hope is the denial of reality
Back to stocks.... Netflix is up this week.. unreal.
And the US stock market gained most of its losses from the last week. Either you think the US stock market reflects the US economy, or you don't.
Bully for you. Did your financial advisor convince you that selling your public teacher benefits would make you more money in the long run?There was a giant bubble. Prices of stocks were unrelated to the underlying economic conditions in China. If anything, this correct puts the two closer in line.
I could find you an investment expert that predicted 10 out of every 2 recessions.
That's a legitimate question that deserves a thoughtful answer.
Last edited by GGT; 08-29-2015 at 03:50 AM.
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