Please be inclusive and welcoming to everyone, regardless of their background, experience, or opinions.
- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 3
After many years of legal struggles an American friend with no money/income will soon receive a large sum (several $100k's) from a guy she decades ago lend a lot of money to finance his first movie (He made career, but somehow "forgot" to pay back the loans, but is now finally forced to do so).
As she has no home but a beautiful piece of land she wanted to build a small house there. I told her afterwards she would be in a similar situation as now: House, but no money to live from, that she should do that only when having a regular income. Now she asks me:
Or figure out how to invest it to be stable'..
What do you suggest???
First idea was "What Jim always suggests ... Equal Weight Index Fund ... RSP ... QQQE ... less overvalued than S&P500".
But I don't know whether that's still true. Since Jim last time(?) recommended QQQE as not overvalued it was $64 (June 2022), but it's 15% higher since, so probably also got a bit ahead of itself. Whether RSP is cheap or expensive I don't know at all.
So I don't really know what to reply.
What would you suggest?
No. of Recommendations: 19
What would you suggest?
I still like Berkshire, QQQE, and RSP.
If I were building a no-investment-decision retirement fund today for a non-expert, that's what I'd put in it.
Is RSP apparently overvalued? It sure seems that way to me. But in the long run, does it matter THAT much, if it's only one leg of a tripod?
Especially with the assumption that the investor in question has no particular investment expertise.
Things are hard to value, so it sure simplifies things if you don't try! Spend the effort on picking the right things.
All three will be worth more in real terms after five years, and more again in ten years, and yet more in fifteen years.
As a group I think they could support a 4% SWR starting from here, even though I'm not sure RSP by itself could manage it reliably starting from today's prices.
(each quarter withdraw 1% of starting portfolio size, adjusted for inflation. Sell small equal percentages of all holdings because dividends won't be enough)
There are certainly better withdrawal plans, but that's the one most people use to start the discussion.
My gut feel is that QQQE will rise in value the fastest among those three, because of my perennial assumption that Berkshire's growth rate will soon start to slow visibly on trend.
Hasn't yet, but it seems inevitable.
Jim
No. of Recommendations: 0
Jim, thank you so much!!!
No. of Recommendations: 7
Jim, thank you so much!!!
Well, don't get too thankful.
Bear in mind that the mere fact that I'm opinionated doesn't mean I'm right.
Still, two of those three things are incapable of going bust (QQQE and RSP), and Berkshire seems pretty safe.
I've staked my retirement on it more than on everything else combined, so I don't feel too bad suggesting (say) 1/3 allocation for someone else.
The biggest unknown in the tripod is where net margins will head among all US corporations on average, which will affect RSP the most.
But not fatally.
Jim
No. of Recommendations: 5
I still like Berkshire, QQQE, and RSP.
Sorry but this is terrible advice for that woman! She asked for something stable. A stock market swoon, and she will sell. At the worst time.
Never mind that risk-adjusted or non-risk-adjusted returns have been better for market cap weighted indices than equal-weighted. That's almost secondary. She should not put her life savings 100% in stocks! Especially now that nominal government bond rates are more reasonable than in the QE era.
Repeating myself because it's the better thing to do for her. Let her buy a mix of stock and bond funds. 60:40 stocks:bonds to 20:80 as she feels comfortable.
No. of Recommendations: 5
Thanks, knighttof3. I might not have made it clear and therefore was misleading Jim and you a bit insofar as that big sum she expects won't be her retirement fund (by far not enough for that) but that she has to live from it for the next 3-5 years if she then still doesn't have a regular income.
Because of that last night (my night, here in Europe) I recommended she puts 1/2 in QQQE+RSP+BRK and the other 1/2 in cash equivalents (Gov. Bonds+Term Dep.+Savings Acc.), best in form of a "ladder". And I stressed that this is so that she isn't forced to sell stocks during a down market.
No. of Recommendations: 2
Btw Jim made it clear that he was thinking on long time horizons. My fault to not make it clear that it's probably just for 3-5 years.
Regarding your
... returns have been better for market cap weighted indices than equal-weighted
You might be absolutely right, but because of the only medium-term horizon I am afraid something dramatic happening to one of the heavyweights could hugely negatively influence the performance (e.g. Apple and China). Therefore in the interest of stability rather equal than cap weighted.
No. of Recommendations: 0
Regarding your
... returns have been better for market cap weighted indices than equal-weighted
You might be absolutely right, but because of the only medium-term horizon I am afraid something dramatic happening to one of the heavyweights could hugely negatively influence the performance (e.g. Apple and China). Therefore in the interest of stability rather equal than cap weighted.I believe that to be untrue. It is true over the last 10 years, but not over the last 20 years, from what I have read. however, not by much.
https://www.etfcentral.com/news/invesco-equal-weig...
No. of Recommendations: 6
...she has to live from it for the next 3-5 years if she then still doesn't have a regular income.
In that case, and with CD and Treasury yields being what they are and equities priced as they are, I'd opt for no more than 20% in a total market index fund and at least 80% in CDs and Treasuries laddered out 3 to 5 years.
