Talk my daughter out of this plan
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Talk my daughter out of this plan
So this weekend my lovely daughter and her wife sat down with me to go over some financial planning they have done. Both earn low 6 figures in education and both will have nice pensions when they retire. Both max out their 403B and they have Roths, and then brokerage account and have done it right as far as I can see. Their allocation plan with their accounts in the Roths and brokerage accounts is 40% Apple 50% VOO Vanguard S&P 500 ETF and 10% VGIT Vanguard Intermediate Treasury fund. The 403b all goes into the S & P 500 TIAA fund. They have done REALLY well with this set up and my only comment was you should never have that much money in one stock. You have too much potential to lose huge amounts....their reply is well...it has worked for the past 18 years, why would we change today? Crap...I got nothing. I tried using Portfolio Visulizer tools and all that but I got nothing.
Honestly with their pensions and all that I can see why they can take a gamble on one stock. And Apple is a GREAT company but dang...anyone got anything to help her here or do I just say " dang kid, you guys got it figured out" and call it a day.
They both said show us a better plan and we will sure take it to heart but..Dad we think you are wrong...BTW...NOT the first time old dad has been wrong...about a lot of thing....Thank you all!!
Honestly with their pensions and all that I can see why they can take a gamble on one stock. And Apple is a GREAT company but dang...anyone got anything to help her here or do I just say " dang kid, you guys got it figured out" and call it a day.
They both said show us a better plan and we will sure take it to heart but..Dad we think you are wrong...BTW...NOT the first time old dad has been wrong...about a lot of thing....Thank you all!!
Re: Talk my daughter out of this plan
So they have 2 pensions, earn 6 figures each, both max out 403bs for retirement in a S&P 500 fund (so I think that's $41k as a couple per year), and in their Roths/taxable (which you do not say what the size of those are in comparison to the 403b balances), they have 40% in one very good, dividend paying stock.Both earn low 6 figures in education and both will have nice pensions when they retire. Both max out their 403B and they have Roths, and then brokerage account and have done it right as far as I can see. Their allocation plan with their accounts in the Roths and brokerage accounts is 40% Apple 50% VOO Vanguard S&P 500 ETF and 10% VGIT Vanguard Intermediate Treasury fund. The 403b all goes into the S & P 500 TIAA fund.
I'd suggest they're doing fine. I mean, I do agree with you that maybe you don't want to be too concentrated in one stock -- but maybe the solution there is to stop new contributions to Apple other than re-invested dividends, or reduce future contributions towards it. Or maybe put in a stop-loss that makes sense for them. Or a max value at which they'll stop contributing new money to Apple, etc.
But really, that's a quibble. It's fine. They have multiple levels of security in their set up, and even a heavy concentration in Roths/taxable in one stock isn't all that bad (it's probably in the end less than 20% of their total allocation).
Re: Talk my daughter out of this plan
You can’t prove anything to them. Send them some books and let them be.
Lot's of people go around their wholes lives not truly knowing how the world works and they still do okay. Some get lucky and do better than the rest of us. It’s hard to convince them it’s not because they know better.
I’ve learned to be okay with this.
JT
Lot's of people go around their wholes lives not truly knowing how the world works and they still do okay. Some get lucky and do better than the rest of us. It’s hard to convince them it’s not because they know better.
I’ve learned to be okay with this.
JT
Re: Talk my daughter out of this plan
Nothing lasts forever, not the british empire, not apple.
I can’t promise that apple will fail. But other seemingly indestructible companies have. I personally believe it is inevitable for every company, given enough time.
Maybe just ask them how they would feel if Apple dropped 70%, say over a ten year period, while at the same time the S&P just did it’s normal 8% annual growth or whatever. Show the two different outcomes and leave it at that.
Or, just say, hey, if you go all S&P, and it just does normal things over the next 3 decades, this is how much you will have. If that is enough, then you should do that, because it’s a more certain path.
On the other hand, they are doing great. They are nailing most of the big things. Working. Making good money. Saving good money. Etc. etc. so they’re not dummies.
I can’t promise that apple will fail. But other seemingly indestructible companies have. I personally believe it is inevitable for every company, given enough time.
Maybe just ask them how they would feel if Apple dropped 70%, say over a ten year period, while at the same time the S&P just did it’s normal 8% annual growth or whatever. Show the two different outcomes and leave it at that.
Or, just say, hey, if you go all S&P, and it just does normal things over the next 3 decades, this is how much you will have. If that is enough, then you should do that, because it’s a more certain path.
On the other hand, they are doing great. They are nailing most of the big things. Working. Making good money. Saving good money. Etc. etc. so they’re not dummies.
Re: Talk my daughter out of this plan
Sometimes the only way for adult children to learn is on their own or "the hard way".
you can explain the risk, why it's not a good idea, how many people in 2000 lost everything working for Enron and holding much company stock....blah blah.. then send them to the BH forums to learn.
Personally, in my 40s i was heavy in my own company stock that went from $40 to $200 to $5 in 2003. That was the "first time" iIwas a millionaire. I lost it and "became a millionaire" two more times before it stuck.
I still retired at 58 and am in a good place.
if they are as smart as you say they are, they will figure it out..
you can explain the risk, why it's not a good idea, how many people in 2000 lost everything working for Enron and holding much company stock....blah blah.. then send them to the BH forums to learn.
Personally, in my 40s i was heavy in my own company stock that went from $40 to $200 to $5 in 2003. That was the "first time" iIwas a millionaire. I lost it and "became a millionaire" two more times before it stuck.
I still retired at 58 and am in a good place.
if they are as smart as you say they are, they will figure it out..
Re: Talk my daughter out of this plan
Apple was nearly bankrupt and was saved by a cash infusion from Microsoft in 1997.Johny Fever wrote: ↑Mon Jun 27, 2022 7:24 pm So this weekend my lovely daughter and her wife sat down with me to go over some financial planning they have done. Both earn low 6 figures in education and both will have nice pensions when they retire. Both max out their 403B and they have Roths, and then brokerage account and have done it right as far as I can see. Their allocation plan with their accounts in the Roths and brokerage accounts is 40% Apple 50% VOO Vanguard S&P 500 ETF and 10% VGIT Vanguard Intermediate Treasury fund. The 403b all goes into the S & P 500 TIAA fund. They have done REALLY well with this set up and my only comment was you should never have that much money in one stock. You have too much potential to lose huge amounts....their reply is well...it has worked for the past 18 years, why would we change today? Crap...I got nothing. I tried using Portfolio Visulizer tools and all that but I got nothing.
Honestly with their pensions and all that I can see why they can take a gamble on one stock. And Apple is a GREAT company but dang...anyone got anything to help her here or do I just say " dang kid, you guys got it figured out" and call it a day.
They both said show us a better plan and we will sure take it to heart but..Dad we think you are wrong...BTW...NOT the first time old dad has been wrong...about a lot of thing....Thank you all!!
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Re: Talk my daughter out of this plan
I actually pointed that out to them and their reply was well that was 1997, a lot of things have changed since then...LOL...true but...thanks for your reply...much appreciated.
- asset_chaos
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Re: Talk my daughter out of this plan
Every one feels like a genius when their risky speculation pays off. But, it sounds like she's old enough to make her own decisions with her own money. I might just remind her that single stocks are a lot riskier than market index funds, but that if she's going in eyes wide open and isn't being influenced by recency bias or the endowment effect, that I'm here to chat about her investment plan whenever she wants.
Regards, |
|
Guy
Re: Talk my daughter out of this plan
The past is not the future. Concentration risk may giveth or taketh away.
Surely they are aware there have been many great companies who were fantastic for many years...until they weren't any more. If the potential for significant loss does not concern them, then all you can really hope for is that they at least go in with their eyes wide open.
Surely they are aware there have been many great companies who were fantastic for many years...until they weren't any more. If the potential for significant loss does not concern them, then all you can really hope for is that they at least go in with their eyes wide open.
Re: Talk my daughter out of this plan
Holding Apple for eighteen years would result in large capital gains. Probably almost all of its value is capital gain. That would make it harder to sell considering the tax liability.
Last edited by Nicolas on Mon Jun 27, 2022 11:04 pm, edited 2 times in total.
Re: Talk my daughter out of this plan
I can barely convince my 14 year old, not sure if you could your's. .All you could do is show them the data around index funds and other single stock(s) history (when I was a kid I wanted to work for Enron as i saw that name as the worlds largest oil company or whatever, from my father's newspaper he was reading).Johny Fever wrote: ↑Mon Jun 27, 2022 7:24 pm So this weekend my lovely daughter and her wife sat down with me to go over some financial planning they have done. Both earn low 6 figures in education and both will have nice pensions when they retire. Both max out their 403B and they have Roths, and then brokerage account and have done it right as far as I can see. Their allocation plan with their accounts in the Roths and brokerage accounts is 40% Apple 50% VOO Vanguard S&P 500 ETF and 10% VGIT Vanguard Intermediate Treasury fund. The 403b all goes into the S & P 500 TIAA fund. They have done REALLY well with this set up and my only comment was you should never have that much money in one stock. You have too much potential to lose huge amounts....their reply is well...it has worked for the past 18 years, why would we change today? Crap...I got nothing. I tried using Portfolio Visulizer tools and all that but I got nothing.
Honestly with their pensions and all that I can see why they can take a gamble on one stock. And Apple is a GREAT company but dang...anyone got anything to help her here or do I just say " dang kid, you guys got it figured out" and call it a day.
They both said show us a better plan and we will sure take it to heart but..Dad we think you are wrong...BTW...NOT the first time old dad has been wrong...about a lot of thing....Thank you all!!
So give them john bogle's investing book and leave it there.
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Re: Talk my daughter out of this plan
No, I'm certainly not going to talk your daughter out of it, and I don't think you should either.
You're not going to be supporting them, so don't worry about.
I wouldn't use a single stock, but Apple is a solid company. It is very unlikely to go to zero.
It sounds like even if it did, they'd still be fine.
One thing in favor of a single stock is that while they may get taxed on dividends, they are
not taxed on capital appreciation until they sell.
In this way, they get the same benefit as a tax deferred account, but unlike a tax deferred account
1. they can sell at any time without penalty,
2. they will only pay long term capital gains, 20%, not at individual rates,
3. the account can be a shared account,
4. there are no RMDs, and
5. If it passes to an heir, there is a step-up in basis, so no taxes may need to be paid at all.
They may have a really good plan, even though it is not as diversified as you might want.
You're not going to be supporting them, so don't worry about.
I wouldn't use a single stock, but Apple is a solid company. It is very unlikely to go to zero.
It sounds like even if it did, they'd still be fine.
One thing in favor of a single stock is that while they may get taxed on dividends, they are
not taxed on capital appreciation until they sell.
In this way, they get the same benefit as a tax deferred account, but unlike a tax deferred account
1. they can sell at any time without penalty,
2. they will only pay long term capital gains, 20%, not at individual rates,
3. the account can be a shared account,
4. there are no RMDs, and
5. If it passes to an heir, there is a step-up in basis, so no taxes may need to be paid at all.
They may have a really good plan, even though it is not as diversified as you might want.
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Re: Talk my daughter out of this plan
I assume they know that even if they divest their individual holdings in Apple, that their S&P 500 holdings are ~7% Apple. So they will still have a large position in AAPL.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
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Re: Talk my daughter out of this plan
I have a daughter, too, and she invests heavily in two companies. I have gently pushed her to diversify, but she's not listening. She told me, "Dad, you invest your way, and I'll invest my way." At least she's saving and investing. I've learned to accept the things I cannot change.
Re: Talk my daughter out of this plan
At least it’s a gigantic company with tons of cash. Single stock risk vs potential reward.
Here is opposite argument. My friend put $9,000 on AOL and it grew to 1.3M before it had a massive dropped. My VP friend left the company to work for Enron. My friend worked for Lucent Technologies and the stock went to 98 cents. All these individuals were able to retire, but that doesn’t take the sting out of losing a large portion of your retirement savings.
What could go wrong with Apple? Unfair regulation. Lawsuits, Accounting fraud. etc.
Here is opposite argument. My friend put $9,000 on AOL and it grew to 1.3M before it had a massive dropped. My VP friend left the company to work for Enron. My friend worked for Lucent Technologies and the stock went to 98 cents. All these individuals were able to retire, but that doesn’t take the sting out of losing a large portion of your retirement savings.
What could go wrong with Apple? Unfair regulation. Lawsuits, Accounting fraud. etc.
"I started with nothing and I still have most of it left."
- Pizza_and_Beer
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Re: Talk my daughter out of this plan
You say your peace why it's a bad idea. Then you let them be. They are adults. Even if Apple goes to zero, it won't be a long term catastrophe. They won't be eating dog food in retirement.
Re: Talk my daughter out of this plan
This is true of anything they purchase in a taxable account, and doesn't particularly favor a single stock. In fact, purchasing a few stocks instead of a single stock would likely afford more opportunities for capital gains/tax management.MathWizard wrote: ↑Mon Jun 27, 2022 7:54 pm One thing in favor of a single stock is that while they may get taxed on dividends, they are
not taxed on capital appreciation until they sell.
In this way, they get the same benefit as a tax deferred account, but unlike a tax deferred account
1. they can sell at any time without penalty,
2. they will only pay long term capital gains, 20%, not at individual rates,
3. the account can be a shared account,
4. there are no RMDs, and
5. If it passes to an heir, there is a step-up in basis, so no taxes may need to be paid at all.
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Re: Talk my daughter out of this plan
Here is an analogy that jumps to mind. i am not sure if it makes a convincing argument. Suppose someone is a home owner and has owned their home for 18 years, without getting homeowner insurance. They have been fortunate enough to avoid flooding, bushfires, etc. Maybe that home owner could also say "not purchasing homeowner insurance has worked for the past 18 years, why would we change today".Johny Fever wrote: ↑Mon Jun 27, 2022 7:24 pm 40% Apple [...] my only comment was you should never have that much money in one stock. You have too much potential to lose huge amounts....their reply is well...it has worked for the past 18 years, why would we change today?
If I think of my own relationship with my dear parents, I am less likely to listen to wise advice when delivered by my parents rather than from other people.
Maybe you could suggest that your daughter seek some independent advice about portfolio diversification vs concentration. If they hear similar advice to avoid concentration from a financially savvy friend, acquaintance, or fixed-fee independent financial advisor, maybe they mentally reframe your suggestion from "dad worrying / dad telling me what to do" to "perhaps we need to fix this".
Re: Talk my daughter out of this plan
Tell them that one time, Westinghouse and GE were leading tech giants in their hey-day. More recently AOL and Yahoo were.Johny Fever wrote: ↑Mon Jun 27, 2022 7:24 pm
Honestly with their pensions and all that I can see why they can take a gamble on one stock. And Apple is a GREAT company but dang...anyone got anything to help her here or do I just say " dang kid, you guys got it figured out" and call it a day.
They both said show us a better plan and we will sure take it to heart but..Dad we think you are wrong...BTW...NOT the first time old dad has been wrong...about a lot of thing....Thank you all!!
There is a reason the common talk is to hold no more than 5-10% in a single stock, even if you work for that company.
After that, it's their choice.
Re: Talk my daughter out of this plan
Jeez, I sold down positions in 3 individual stocks as part of a rebalancing program in February 2021. I was concerned that Microsoft which I hold both individually and in funds was approaching 3% of my retirement portfolio. I look at this and roll my eyes, I was worried that Microsoft would be a freaking 3% of my retirement. What was I worried about?
A fool and his money are good for business.
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Re: Talk my daughter out of this plan
Take a look at the long term performance of General Electric (GE).
It was once the darling of Wall Street, now worth a fraction of its' former self.
Regards,
It was once the darling of Wall Street, now worth a fraction of its' former self.
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Talk my daughter out of this plan
How nerdy do you want to get? Lazard did a study (cited in Maggiuli’s ofdollarsanddata blog) showing that increasing your stock holdings from 1 to 5 cuts your standard deviation in half. Check the chart on page 9.
https://www.lazardassetmanagement.com/d ... search.pdf
It just feels like unnecessary risk. Especially with Steve Jobs gone. When you’ve won the game, stop playing, typeofthing.
https://www.lazardassetmanagement.com/d ... search.pdf
It just feels like unnecessary risk. Especially with Steve Jobs gone. When you’ve won the game, stop playing, typeofthing.
Re: Talk my daughter out of this plan
It might be the best antidote would be reading a history of corporate failures and asking them how sure they are such a failure can't happen to Apple. Included in this would be a history of corporations that grew stodgy and became mediocre performers.
A different more analytic approach would be to ask them to understand what they have to gain and what they have to lose and see what the perspective is. Maybe some idea of single stock risk would hit home. Or -- It is even possible that they are in a position where an Apple failure is not costly enough to them that they wouldn't rather keep taking their chances.
I recall asking my father if I should not hold stock in the company he worked for. I thought they were pretty good. He told me to under no circumstances hold that stock. Not long after he retired they went bankrupt but a good part of the pension was saved, turned over to an insurance company.
A different more analytic approach would be to ask them to understand what they have to gain and what they have to lose and see what the perspective is. Maybe some idea of single stock risk would hit home. Or -- It is even possible that they are in a position where an Apple failure is not costly enough to them that they wouldn't rather keep taking their chances.
I recall asking my father if I should not hold stock in the company he worked for. I thought they were pretty good. He told me to under no circumstances hold that stock. Not long after he retired they went bankrupt but a good part of the pension was saved, turned over to an insurance company.
Re: Talk my daughter out of this plan
dbr wrote: ↑Mon Jun 27, 2022 8:20 pm It might be the best antidote would be reading a history of corporate failures and asking them how sure they are such a failure can't happen to Apple. Included in this would be a history of corporations that grew stodgy and became mediocre performers.
A different more analytic approach would be to ask them to understand what they have to gain and what they have to lose and see what the perspective is. Maybe some idea of single stock risk would hit home. Or -- It is even possible that they are in a position where an Apple failure is not costly enough to them that they wouldn't rather keep taking their chances.
I recall asking my father if I should not hold stock in the company he worked for. I thought they were pretty good. He told me to under no circumstances hold that stock. Not long after he retired they went bankrupt but a good part of the pension was saved, turned over to an insurance company.
This. I’d also ask, the decision doesn’t need to be sell all of Apple or none of it. Sell even 1/4 to @ 1/2 if the position, and they will reduce risk dramatically.
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Re: Talk my daughter out of this plan
Suggest that they look into 457(b) for additional tax-advantaged saving.
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Re: Talk my daughter out of this plan
GE went a hundred years steadily growing. Then it skyrocketed. Then stumbled, then came back, then stumbled, then came back, then headed down the toilet. Apple had several stumbles and appears to be in its biggest one in history right now.
Bogle: Smart Beta is stupid
Re: Talk my daughter out of this plan
Discussion or book on dot com melt down.
Discussion of problems is having in Europe and elsewhere.
Bogle’s book on investing.
I love most apple products but decided to sell my stock in Apple - It will crash some day.
P.S. picking stocks = a gambling mentality.
Discussion of problems is having in Europe and elsewhere.
Bogle’s book on investing.
I love most apple products but decided to sell my stock in Apple - It will crash some day.
P.S. picking stocks = a gambling mentality.
- arcticpineapplecorp.
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Re: Talk my daughter out of this plan
Sound like you can't tell them what to do, so instead here's some questions I would ask them:
1. are they still buying more Apple stock or are they done buying Apple stock (in the past) and it's just risen to 40% of their brokerage?
2. What do they do with the dividends received from Apple? Does it reinvest or does it go to cash/settlement in the brokerage? (I'd suggest it go to cash rather than reinvest so they don't keep increasing their percentage Apple represents in their brokerage).
3. Do they have an amount (percentage-wise) that they would feel is TOO MUCH apple stock in their brokerage? Like if it's 40% now, would they have a problem if it was 50%? 60%? 70%? What would they do if/when it rises to make up that much of their brokerage? What's their exit strategy? Do they have one?
4. The way you worded it I can't tell if they have the 10% intermediate treasury fund in their Roth or their brokerage. In either event, I wouldn't keep fixed income in either Roth or Brokerage. I'd put that 10% treasuries or bonds or whatever fixed income they might have in their 403b (stable value fund?) in the 403b instead. It's more tax efficient that way. What fixed income options do they have in 403b? Fill up the 10% there (and increase the S&P500 or whatever stock/not Apple in the brokerage/Roth that they decreased in their 403b by adding fixed income instead in 403b). Did that make sense?
5. Other than that ask them what they would do if/when Apple dropped in price? In other words, if they don't have an exit strategy at the top (when Apple makes up too much), would they exit if Apple dropped and made up 30% of their portfolio? 20%?, 10%?
6. Do they have access to a 457b plan IN ADDITION to a 403b plan? Some teachers do. If so, they can save even more money than they are (not that they're not doing great, but they could stash even more).
These are the things I'd want to know (you may know the answer to some, just didn't say in your OP). Let us know. What do you think?
1. are they still buying more Apple stock or are they done buying Apple stock (in the past) and it's just risen to 40% of their brokerage?
2. What do they do with the dividends received from Apple? Does it reinvest or does it go to cash/settlement in the brokerage? (I'd suggest it go to cash rather than reinvest so they don't keep increasing their percentage Apple represents in their brokerage).
3. Do they have an amount (percentage-wise) that they would feel is TOO MUCH apple stock in their brokerage? Like if it's 40% now, would they have a problem if it was 50%? 60%? 70%? What would they do if/when it rises to make up that much of their brokerage? What's their exit strategy? Do they have one?
4. The way you worded it I can't tell if they have the 10% intermediate treasury fund in their Roth or their brokerage. In either event, I wouldn't keep fixed income in either Roth or Brokerage. I'd put that 10% treasuries or bonds or whatever fixed income they might have in their 403b (stable value fund?) in the 403b instead. It's more tax efficient that way. What fixed income options do they have in 403b? Fill up the 10% there (and increase the S&P500 or whatever stock/not Apple in the brokerage/Roth that they decreased in their 403b by adding fixed income instead in 403b). Did that make sense?
5. Other than that ask them what they would do if/when Apple dropped in price? In other words, if they don't have an exit strategy at the top (when Apple makes up too much), would they exit if Apple dropped and made up 30% of their portfolio? 20%?, 10%?
6. Do they have access to a 457b plan IN ADDITION to a 403b plan? Some teachers do. If so, they can save even more money than they are (not that they're not doing great, but they could stash even more).
These are the things I'd want to know (you may know the answer to some, just didn't say in your OP). Let us know. What do you think?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Talk my daughter out of this plan
I was always partial to the "If you didn't currently own it, would you buy it today?" approach.
- arcticpineapplecorp.
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Re: Talk my daughter out of this plan
and the followup to that is...
if no, then why are you still holding it and why haven't you sold it?
if yes, then why aren't you backing up the truck to buy more?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Talk my daughter out of this plan
Buy them a copy of whatever enlightened investing book you think they would respond to and....be done with it. They are adults with a very good potential for future financial success. You can lead a horse to water....
Maybe:
• 4 Pillars of Investing by Bernstein (may be a bit dry for mortals)
• A Random Walk Down Wall Street by Malkiel
• A Boglehead book (sorry I don't love the one's I've read)
• Other suggestions?
Maybe:
• 4 Pillars of Investing by Bernstein (may be a bit dry for mortals)
• A Random Walk Down Wall Street by Malkiel
• A Boglehead book (sorry I don't love the one's I've read)
• Other suggestions?
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Re: Talk my daughter out of this plan
“If Apple is the largest company by market cap today, how much higher can it go?”
It’s not the most logically sound argument, but it might get them thinking.
That said I agree with others that the best lesson is experienced and not told.
It’s not the most logically sound argument, but it might get them thinking.
That said I agree with others that the best lesson is experienced and not told.
Re: Talk my daughter out of this plan
It's a really foolish plan, but you probably can't talk them out of it.
Re: Talk my daughter out of this plan
Real question is when would she sell.
Is Apple the next Brawndo (the thirst mutilator)?
Is Apple the next Brawndo (the thirst mutilator)?
Amateur investors are not cool-headed logicians.
Re: Talk my daughter out of this plan
Buy them an old blackberry phone
Re: Talk my daughter out of this plan
Just a quibble but one thing that would be good for them to realize is that VOO also owns a lot of Apple stock so they may actually be closer to having 50% of their investments in Apple.Johny Fever wrote: ↑Mon Jun 27, 2022 7:24 pm Their allocation plan with their accounts in the Roths and brokerage accounts is 40% Apple 50% VOO Vanguard S&P 500 ETF and 10% VGIT Vanguard Intermediate Treasury fund.
This also means that as they are buying more S&P 500 index funds they are also buying more Apple stock.
It would be baby steps but you might suggest that when they buy more of an S&P 500 index that they also sell a bit of Apple stock so that their Apple holdings does not grow any more. Apple is about 7% of the S&P 500 index so when they buy another $10,000 of it they may want to sell about $700 of Apple stock.
There is an old saying, "When you have found that you have dug yourself into a hole the first thing to do is to stop digging."
Another small thing is that they might want to buy a total stock market index fund instead of the S&P 500 index. It would be a bit more diversified since it also owns small and mid-cap companies.
If they support a charity or church then they could also give them shares of Apple stock instead of cash.
Re: Talk my daughter out of this plan
Until this goes south, I wouldn't expect them to change anything. They have pensions.
Re: Talk my daughter out of this plan
IMHO she is already wasting 10% on bonds, so she needs those returns from Apple. It’s her portfolio, so let her set it up the way she wants to. Everybody has a different risk tolerance, so if she is happy with it, what’s the problem?
50% VYM / 10% TQQQ / 10% UPRO / 10% UDOW / 5% UMDD / 5% URTY / 5% ROM / 5% TSLA
Re: Talk my daughter out of this plan
If you are convinced that your daughter is 100% wrong to own Apple, then it might not matter what you say.
If it is possible that she used any logic in choosing Apple, then she might surprise you with a useful investing insight. (That sounds like a snarky outtake, but I’ve learned that even my 5 yr old makes me rethink money matters.)
If it is possible that she used any logic in choosing Apple, then she might surprise you with a useful investing insight. (That sounds like a snarky outtake, but I’ve learned that even my 5 yr old makes me rethink money matters.)
Re: Talk my daughter out of this plan
While that portfolio is certainly sub-optimal, they make so much money they'll probably be fine. My portfolio is much more broadly diversified, but like most people I don't make nearly so much money, so they'll almost certainly have more than most of us. Even if they just invested in a savings account they'd be fine.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
Re: Talk my daughter out of this plan
What percentage of their overall portfolio (all investments, taxable or otherwise) is in one stock?Johny Fever wrote: ↑Mon Jun 27, 2022 7:24 pm So this weekend my lovely daughter and her wife sat down with me to go over some financial planning they have done. Both earn low 6 figures in education and both will have nice pensions when they retire. Both max out their 403B and they have Roths, and then brokerage account and have done it right as far as I can see. Their allocation plan with their accounts in the Roths and brokerage accounts is 40% Apple 50% VOO Vanguard S&P 500 ETF and 10% VGIT Vanguard Intermediate Treasury fund. The 403b all goes into the S & P 500 TIAA fund. They have done REALLY well with this set up and my only comment was you should never have that much money in one stock. You have too much potential to lose huge amounts....their reply is well...it has worked for the past 18 years, why would we change today? Crap...I got nothing. I tried using Portfolio Visulizer tools and all that but I got nothing.
Honestly with their pensions and all that I can see why they can take a gamble on one stock. And Apple is a GREAT company but dang...anyone got anything to help her here or do I just say " dang kid, you guys got it figured out" and call it a day.
They both said show us a better plan and we will sure take it to heart but..Dad we think you are wrong...BTW...NOT the first time old dad has been wrong...about a lot of thing....Thank you all!!
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
Re: Talk my daughter out of this plan
I think you have the right attitude - if they keep it as it is, so be it, and they will probably still be just fine. That said, if you want a counter example, AMZN might be a good one.
I bring this up because we have a decent level of single-stock exposure with AMZN, not 40%, but currently about 6% of our portfolio (and in taxable, ouch). We bought it when we were in grad school in 1998/99, before we knew anything about index funds, and just held on to it - we aren't still investing in it (except, I suppose, through mutual fund holdings of the index, which I'm not counting in our allocation), and mainly use it now to fund charitable donations.
If you compare its growth since our first investment, it still looks great, of course. However, if you look at its peak vs. today (around 186 vs. 113), that's a lot less great. How would your daughter/d-i-l feel if their Apple holdings dropped by 40%? If they are still sanguine about their retirement timeline, then that's fine. Otherwise, they might want to consider rebalancing.
I bring this up because we have a decent level of single-stock exposure with AMZN, not 40%, but currently about 6% of our portfolio (and in taxable, ouch). We bought it when we were in grad school in 1998/99, before we knew anything about index funds, and just held on to it - we aren't still investing in it (except, I suppose, through mutual fund holdings of the index, which I'm not counting in our allocation), and mainly use it now to fund charitable donations.
If you compare its growth since our first investment, it still looks great, of course. However, if you look at its peak vs. today (around 186 vs. 113), that's a lot less great. How would your daughter/d-i-l feel if their Apple holdings dropped by 40%? If they are still sanguine about their retirement timeline, then that's fine. Otherwise, they might want to consider rebalancing.
Re: Talk my daughter out of this plan
When someone is being successful at something it's hard to show them that they are wrong. The best you can do is show them examples of other successful companies they have gone bust or are no longer the giant that they were. (GE, Nortel, Cisco, Enron). Show them the top ten companies listed from 1990 and 2000. Where are they now? Not to sell all their AAPL stock, but to diversify some of it into other holdings or stocks.
Remind them that financially they are not that smart, no one is. It's not a winning hand until you take profits.
Remind them that financially they are not that smart, no one is. It's not a winning hand until you take profits.
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Re: Talk my daughter out of this plan
Telling them about companies that didn't impact their lives noticeably (such as Enron, Eastman Kodak, or Xerox) might not convince them.
On November 5 2021, VTI total stock market ETF was trading at an all-time high of around 244.06, yesterday it closed at 194.59, a drop of 20%.
In the same time period, Facebook went from trading at an intraday high of 346.79 to a closing price yesterday of 169.49, a drop of 51%, and Netflix went from an intraday high of 665.64 to 189.14, dropping a massive 71%.
These are two of the so-called "FAANG" stocks that used to be the "darlings" of the investing world for so long. Nobody thought nine months ago that these two companies would so drastically underperform the market. It could happen to Apple as well.
On November 5 2021, VTI total stock market ETF was trading at an all-time high of around 244.06, yesterday it closed at 194.59, a drop of 20%.
In the same time period, Facebook went from trading at an intraday high of 346.79 to a closing price yesterday of 169.49, a drop of 51%, and Netflix went from an intraday high of 665.64 to 189.14, dropping a massive 71%.
These are two of the so-called "FAANG" stocks that used to be the "darlings" of the investing world for so long. Nobody thought nine months ago that these two companies would so drastically underperform the market. It could happen to Apple as well.
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
Re: Talk my daughter out of this plan
Maybe the entire future will be exactly like the past 18 years. Maybe Apple will outperform the market forever. Maybe not.Johny Fever wrote: ↑Mon Jun 27, 2022 7:24 pmThey have done REALLY well with this set up and my only comment was you should never have that much money in one stock. You have too much potential to lose huge amounts....their reply is well...it has worked for the past 18 years, why would we change today? Crap...I got nothing. I tried using Portfolio Visulizer tools and all that but I got nothing.
Honestly with their pensions and all that I can see why they can take a gamble on one stock. And Apple is a GREAT company but dang...anyone got anything to help her here or do I just say " dang kid, you guys got it figured out" and call it a day.
Sometimes all you can say to adult children is "Good luck".
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Re: Talk my daughter out of this plan
If they are happy with the AAPL investment I doubt anyone could talk them out of it. Since they are doing so well overall I wouldn’t worry too much.Johny Fever wrote: ↑Mon Jun 27, 2022 7:24 pm They have done REALLY well with this set up and my only comment was you should never have that much money in one stock. You have too much potential to lose huge amounts....their reply is well...it has worked for the past 18 years, why would we change today? Crap...I got nothing. I tried using Portfolio Visulizer tools and all that but I got nothing.
That said, if they are going to buy a single stock, they are operating outside of modern portfolio theory which is the system of knowledge that leads to passive investing and the idea of rebalancing allocations. I would encourage them to let the AAPL bet ride independently of the portfolio and never rebalance into it. (If the stock keeps doing super well, I might rebalance out to take some winnings off the table).)
If they are going to break from modern portfolio theory they need to break all the way and start applying the analysis tools that stock pickers use to determine if the good company has a good price. They are buying a business. They can’t blindly buy the stock and it certainly isn’t part of a rebalancing regime.
They don’t have a 40/50/10 portfolio. They have bought a business and they have a 83/16 VOO/VGIT portfolio.
Ben Felix recently released a video on the dangers of buying a “good company” at any price.
https://m.youtube.com/watch?v=ZY_NFQNUr_k
Re: Talk my daughter out of this plan
When I was a kid in the 70’s, I can remember going to Kmart to buy one of this little gold/yellow boxes of Kodak film.
That, my friend, is why you don’t want to own individual stocks.
That, my friend, is why you don’t want to own individual stocks.
Re: Talk my daughter out of this plan
With personal finance and investing, it's ideal to learn from the mistakes and experiences of others. Unfortunately, most people are only able to learn from their own mistakes
Re: Talk my daughter out of this plan
"Amazon is not too big to fail ... In fact, I predict one day Amazon will fail," Bezos said in reply to a staffer who asked about big businesses like Sears going bankrupt. "Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years," he said.
Re: Talk my daughter out of this plan
Ask them - If Apple did the same percentage rise that it did during the last 25 years, would it then account for more than 100% of the US stock market?
So, how likely is it that it repeats the same performance?
So, how likely is it that it repeats the same performance?
“And how shall I think of you?' He considered a moment and then laughed. 'Think of me with my nose in a book!” |
― Susanna Clarke, Jonathan Strange & Mr Norrell