Investing only in VTSAX to reach F.I.R.E... too risky?

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Tropical
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Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Tropical »

If someone has 500k cash to invest (their entire life savings) to reach (F.I.R.E) "Financially Independent Retire Early" and they were to invest the entire 500k into Vanguards VTSAX. Would this be considered risky if they need to reach FIRE in 10 years and their FIRE number to hit in the next 10 years is 1 million?

Because when I use the compound interest calculator and put in a conservative 6.5% annual return (I always rather underestimate the return), with 500k investment it would reach 1 million in 10 years with $500/month contribution.

I would NOT withdraw anything from the VTSAX during the first 10 years. Only after 10 years would I start withdrawing 4% (hence the "4% rule") and during those years I would be contributing more and more funds (a LOT more than only 500 bucks each month) into the VTSAX every month as my ultimate FIRE number is 2.5M.

Is my above plan foolish/risky to invest 100% in VITSAX?

PS: I am stuck. Either I invest most of the of the 500k into real estate rentals or VTSAX. VTSAX seems simpler, what I mean is that I do not have enough experience in real estate investing to be confident that it would be the better route and to make long story short, I really need to make the decision in the next few months.

Thanks!!
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Tropical
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Re: what to do with money for passive income

Post by Tropical »

[This post merged with OP's similar question in another post. Moderator Pops1860]

Someone in this thread replied "If you really want it to be passive, then invest in a 70/30 stock/bond portfolio and withdraw 3.5%-4% annually."

What about VTSAX? Would that be equivalent? Sorry if my question is dumb, but if "investing in a 70/30 stock/bond portfolio" is better than VTSAX why is that?

Thanks in advance, I'm trying to learn as much as possible.

[Note to OP: It is best to keep all questions/information on a situation together in one thread. This allows members to give a more informed response to your situation. Moderator Pops1860]
Glockenspiel
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Glockenspiel »

It's not foolish or risky to invest 100% into VTSAX. VTSAX represents the total stock market. It'll go up and down with the overall market.

It IS very risky to invest the $500k into real estate rentals, though. 100% in VTSAX is fine, if you're not relying on having to retire in a very specific timeframe.
bencahill
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by bencahill »

One of the largest risks in 100% VTSAX is the risk that you will sell during a market downturn. It is hard to overstate this risk, and it is very personal. If you have not lived through a market downturn, it might be wise to choose a more conservative allocation to start with.
cbs2002
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by cbs2002 »

Over the long run, I would say that 100% VTSAX is a reasonable way to try to nominally double your money every 10 years.

The problem is that "long run" means 40+ years and "nominal" means not including inflation. You could easily find yourself with less than your original investment in 10 years or with growth that gets undermined by inflation. Or maybe your investment quintuples like it has done since 2009 - not a bet I would take. No one here or anywhere else will be able to give you the certainty you are seeking. Many forecasters believe the U.S. stock market will be returning 3% nominal or less over the next decade. Are they right or wrong? No one knows.

I'd feel a lot more comfortable saying that VTSAX will double four times in 40 years than once in 10 years, but none of it is real until it is.
bendix
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by bendix »

From the top of my head I wouldnt know a way to invest in stocks that has a lower risk than VTSAX. As long as you understand that it will flow up and down with the market and maybe consider dollar averaging yourself into it and not buy 500k of VTSAX at once...
asif408
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by asif408 »

The short answer is yes, and the reason is single country and/or regional risk. Look, for example, at the 2000-2010 period: https://www.portfoliovisualizer.com/bac ... tion3_3=33

A 100% VTSAX (VTSMX is equivalent, selected because its history going back farther) came up way short. Developed markets, same thing, though a little less bad. If you had 100% emerging markets, you came out great (but who did that?). If you pick a "I don't know mix" of 1/3 US, 1/3 developed ex-US, and 1/3 emerging markets, you got about a 5% return, pretty good but a little short.

Now look at the 2010-2020 period: https://www.portfoliovisualizer.com/bac ... tion3_3=33

VTSAX got you there, emerging markets didn't, and a globally diversified portfolio got you close (5.5%).

I cherry picked these for illustration because I knew EM had great performance in the 2000-2010 period and US had it in the 2010-2020 period (developed markets were in between both times). The takeaway for me is that in any 10 year period, any one country or region of the world can have low or negative returns. But the likelihood of all countries/regions having poor returns over those 10 years is low. In both cases an equal mix of US, developed ex-US, and EM gave you positive mid single digit returns, and if you extended both time frames by a year you pretty much hit your goal with the globally diversified portfolio.

So if I was trying to double my money in the next 10 years, the least risky stock investment, IMO, would be globally diversified, and the most risky would be individual countries or regions, no matter how great or wonderful you think those countries and/or regions are. And even being globally diversified is no guarantee, but at least it minimizes the risk of very low or negative returns over a given 10 year period.
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Nate79
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Nate79 »

What happens if you don't meet your target?
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Tropical
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Tropical »

Thanks for the replies!

I'm in my mid 40s... I do not have 40 years... I don't have my health etc and cannot until I'm in my 80s (almost dead!) to hit at LEAST 1 million portfolio size with VTSAX.

Based on replies it seems the only risk of me putting 100% of my 500K into VTSAX is as follows:

1. There could be a downturn resulting in the VTSAX to perform TERRIBLY for several years in a row? IF this happens... what the the worst scenario "return rate" I should enter into my compound calculator to accommodate that? Because I NEVER enter 10%. I always use 6% or 7% when looking at numbers using compound interest calculator.
When I enter 500K as initial lump sum investment into VTSAX with 6% return over the next 10 years... that STILL gives me a portfolio of $909,698... that is very good!!!! BUT if there is a bad downturn... does this mean that even my 6% return is NOT enough to counteract the downturn?? If so, what the return percentage I should use?

2.Based on certain replies in this thread it appears that it would not be smart and would be too risky for me to invest the entire 500K into VTSAX because any possible downturn could completely squash my ability to hit 1 million in 10 years from my 500K investment... so how can I "diversify" my VTSAX to avoid this? Get some international VTSAX along with domestic?

3.I have been through some CRAZY crap... and selling during a downturn would not be something I would do. I am a hold long-term person so this is a non-issue for me because what goes down must come back up eventually. What is worst case scenario during a downturn? That the VTSAX portfolio would not only NOT grow at all but go into the RED?? How can 3,000+ companies in the VTSAX all go into the red simultaneously though?? This doesn't make sense to me or seem like a possibility? Hence what makes VTSAX safe during a downturn?

4.During a downturn.. what the the WORST return the VTSAX has given? I HOPE not 0%!? It appears that VTSAX returned -8.78 percent over the past year, 18.35 percent over the past three years. So last year VTSAX was in he RED -8.78 percent!?

Much apologies for my looong post. ALL of the replies is SUPER appreciated!!!!!
Last edited by Tropical on Fri Jun 02, 2023 6:55 pm, edited 2 times in total.
Topic Author
Tropical
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Tropical »

asif408 wrote: Fri Jun 02, 2023 2:52 pm The short answer is yes, and the reason is single country and/or regional risk. Look, for example, at the 2000-2010 period: https://www.portfoliovisualizer.com/bac ... tion3_3=33

A 100% VTSAX (VTSMX is equivalent, selected because its history going back farther) came up way short. Developed markets, same thing, though a little less bad. If you had 100% emerging markets, you came out great (but who did that?). If you pick a "I don't know mix" of 1/3 US, 1/3 developed ex-US, and 1/3 emerging markets, you got about a 5% return, pretty good but a little short.

Now look at the 2010-2020 period: https://www.portfoliovisualizer.com/bac ... tion3_3=33

VTSAX got you there, emerging markets didn't, and a globally diversified portfolio got you close (5.5%).

I cherry picked these for illustration because I knew EM had great performance in the 2000-2010 period and US had it in the 2010-2020 period (developed markets were in between both times). The takeaway for me is that in any 10 year period, any one country or region of the world can have low or negative returns. But the likelihood of all countries/regions having poor returns over those 10 years is low. In both cases an equal mix of US, developed ex-US, and EM gave you positive mid single digit returns, and if you extended both time frames by a year you pretty much hit your goal with the globally diversified portfolio.

So if I was trying to double my money in the next 10 years, the least risky stock investment, IMO, would be globally diversified, and the most risky would be individual countries or regions, no matter how great or wonderful you think those countries and/or regions are. And even being globally diversified is no guarantee, but at least it minimizes the risk of very low or negative returns over a given 10 year period.


Thanks! So it appears that I indeed would need to diversify VTSAX but I have no idea how to get this accomplished... if I called Vanguard would they be able to help me get my VTSAX setup in such a globally diversified manner? From your reply it appears I would need to select "an equal mix of US, developed ex-US, and EM" in order to be globally diversified.

I understand EM is (emerging markets)... but I am confused what "developed ex-US" is?

Thanks!
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Tropical
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Tropical »

Sorry to triple post in a row but someone in this thread replied with "Many forecasters believe the U.S. stock market will be returning 3% nominal or less over the next decade".

This means that my initial lump sum investment of 500K into the VTSAX would only grow into a portfolio size of $674,676 after 10 years? Sorry if this a dumb question, just trying to clarify.

Thanks!
TacoLover
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by TacoLover »

A few principles I follow …

At any time and stock market can crash 50%. It can take as long as 20 years until it comes back to its previous peak. It often comes back in less time, but it is not rare for 10 years to pass before it reaches its previous level. It is rare to require 15 years and there has never been a meaningful drop in the overall stock market over 20 years. to me that means money that you need in 15 or 20 years it should be in equities. Money that you need in 10 years, however carries at least some risk in equities. But for money that you need long-term, you need it to grow not just keep up with inflation, and not just to be there. Some money that you need 15 or 20 years from now belongs in equities. VTSAX is perfect. Some people like to add international, but I do not. That is a discussion for another day.

Money that you need within the next 1 to 3 years has to be safe. It Hass to be crashproof. To my mind that means cash equivalents. Money markets. Cities. The problem is this will generally lose to inflation so those vehicles are not appropriate for a longer-term because they will lose to inflation.

For money that you need more than three years, but less than 10 years you should not be in cash equivalents because you will lose to inflation. But also you cannot be in equities because you could find yourself 50% down right when you need the money. So to my mind that is where bond and bond equivalents come in.

I am in my 50s now and hoping to continue to be able to work into my 70s. I was 100% equities until just a few years ago when I switched it to about 95/5 or 90/10.

VTSAX is a great choice. However, if you really need the money in under 10 years, having that in all equities, might be a little bit risky. If you need it for after 10 years, it becomes less risky. If you need it for 15 or 20 years from now, it is not very risky.
Johm221122
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Johm221122 »

My goal is very similar in the amount and time frame and I'm 100% stocks but I will not be so heavy in US large cap stocks. I'm 50% large cap stocks (compared to your suggestion of 80%) and I hope they do well but I won't bet the farm on it.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by arcticpineapplecorp. »

Michael Kitces wrote a really good article about this very question called Is "Save For Decades, Then Quickly Double Your Money And Retire" Your (Unintentional) Retirement Advice!?
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 | Wiki
TacoLover
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by TacoLover »

Tropical wrote: Fri Jun 02, 2023 6:49 pm Sorry to triple post in a row but someone in this thread replied with "Many forecasters believe the U.S. stock market will be returning 3% nominal or less over the next decade".

This means that my initial lump sum investment of 500K into the VTSAX would only grow into a portfolio size of $674,676 after 10 years? Sorry if this a dumb question, just trying to clarify.

Thanks!
Nobody has any idea. You can take that to the bank. We can just use the past to try to establish principles to make our best decisions going forward. Generally, and for the most part, if your goal is growth, you’re looking at equities. Equities can be very volatile however, so you need to be able to tolerate big swings down and big swings up. Generally, for the most part, if your goal is to keep up with inflation, you are looking at bonds. There is still some volatility, but not as much as with equities. In general. Equities and bonds however, still can crash and so if there is money that you absolutely need to be there within the next year or two or three you cannot except those risks and so that is where Cash is. If for example you’re saving for a down payment on a house or making mortgage payments. You cannot accept the risk that money will go down.

Anyone who predicts what the market will do in the future is just making stuff up. It’s not like there is an alternative to putting your long-term money in equities. Money will get eaten away by inflation. For the long term you need money to grow. That generally means equities. So ignore any predictions to anybody mix. Short term, money in cash equivalents, short to medium for money and bond equivalence. Long-term money in equities. And then you just accept what the market gives. Nothing you can do about that.
TacoLover
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by TacoLover »

Tropical wrote: Fri Jun 02, 2023 6:45 pm
asif408 wrote: Fri Jun 02, 2023 2:52 pm The short answer is yes, and the reason is single country and/or regional risk. Look, for example, at the 2000-2010 period: https://www.portfoliovisualizer.com/bac ... tion3_3=33

A 100% VTSAX (VTSMX is equivalent, selected because its history going back farther) came up way short. Developed markets, same thing, though a little less bad. If you had 100% emerging markets, you came out great (but who did that?). If you pick a "I don't know mix" of 1/3 US, 1/3 developed ex-US, and 1/3 emerging markets, you got about a 5% return, pretty good but a little short.

Now look at the 2010-2020 period: https://www.portfoliovisualizer.com/bac ... tion3_3=33

VTSAX got you there, emerging markets didn't, and a globally diversified portfolio got you close (5.5%).

I cherry picked these for illustration because I knew EM had great performance in the 2000-2010 period and US had it in the 2010-2020 period (developed markets were in between both times). The takeaway for me is that in any 10 year period, any one country or region of the world can have low or negative returns. But the likelihood of all countries/regions having poor returns over those 10 years is low. In both cases an equal mix of US, developed ex-US, and EM gave you positive mid single digit returns, and if you extended both time frames by a year you pretty much hit your goal with the globally diversified portfolio.

So if I was trying to double my money in the next 10 years, the least risky stock investment, IMO, would be globally diversified, and the most risky would be individual countries or regions, no matter how great or wonderful you think those countries and/or regions are. And even being globally diversified is no guarantee, but at least it minimizes the risk of very low or negative returns over a given 10 year period.


Thanks! So it appears that I indeed would need to diversify VTSAX but I have no idea how to get this accomplished... if I called Vanguard would they be able to help me get my VTSAX setup in such a globally diversified manner? From your reply it appears I would need to select "an equal mix of US, developed ex-US, and EM" in order to be globally diversified.

I understand EM is (emerging markets)... but I am confused what "developed ex-US" is?

Thanks!
Be cautious about recommendations to Go’s International. Some people hear, believing it strongly. Some people who don’t believe in it at all. I am one of the ladder. John Bogle did not think international. It was necessary aBe cautious about recommendations to Go’s International. Some people here believe in it strongly. Some people here don’t believe in it at all. I am one of the latter. John Bogle did not think international. It was necessary at all. He stated that American companies are sufficiently exposed to the international market, selling and buying international, there is no need to purchase international companies in your portfolio. He said if you are going to ignore this and include international, it should be no more than 20% of your portfolio. Many people here are extremely strong advocates for international, and just as many people here are extremely strong advocates for USA only. Each side has good arguments. You just have to decide which side resonates with you better. My portfolio is USA only.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by TacoLover »

Asif, Nathan drake, and burritolover are strong advocates for international. Me, Beelzebub, and others are strong advocates for USA only. At the end of the day we each keep repeating the same things over and over again. There are good arguments for both sides. The former believe that the arguments for international are more convincing in the latter, believe the arguments, for all USA are more convincing. Don’t jump into an International. don’t jump into international. Do your research. Read the 10,000 threads on the subject that all end up, saying the same thing over and over again. Do not jump in to international. Make sure you understand the arguments and you agree with the arguments given.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by TacoLover »

Tropical wrote: Fri Jun 02, 2023 6:39 pm Thanks for the replies!

I'm in my mid 40s... I do not have 40 years... I don't have my health etc and cannot until I'm in my 80s (almost dead!) to hit at LEAST 1 million portfolio size with VTSAX.

Based on replies it seems the only risk of me putting 100% of my 500K into VTSAX is as follows:

1. There could be a downturn resulting in the VTSAX to perform TERRIBLY for several years in a row? IF this happens... what the the worst scenario "return rate" I should enter into my compound calculator to accommodate that? Because I NEVER enter 10%. I always use 6% or 7% when looking at numbers using compound interest calculator.
When I enter 500K as initial lump sum investment into VTSAX with 6% return over the next 10 years... that STILL gives me a portfolio of $909,698... that is very good!!!! BUT if there is a bad downturn... does this mean that even my 6% return is NOT enough to counteract the downturn?? If so, what the return percentage I should use?

2.Based on certain replies in this thread it appears that it would not be smart and would be too risky for me to invest the entire 500K into VTSAX because any possible downturn could completely squash my ability to hit 1 million in 10 years from my 500K investment... so how can I "diversify" my VTSAX to avoid this? Get some international VTSAX along with domestic?

3.I have been through some CRAZY crap... and selling during a downturn would not be something I would do. I am a hold long-term person so this is a non-issue for me because what goes down must come back up eventually. What is worst case scenario during a downturn? That the VTSAX portfolio would not only NOT grow at all but go into the RED?? How can 3,000+ companies in the VTSAX all go into the red simultaneously though?? This doesn't make sense to me or seem like a possibility? Hence what makes VTSAX safe during a downturn?

4.During a downturn.. what the the WORST return the VTSAX has given? I HOPE not 0%!? It appears that VTSAX returned -8.78 percent over the past year, 18.35 percent over the past three years. So last year VTSAX was in he RED -8.78 percent!?

Much apologies for my looong post. ALL of the replies is SUPER appreciated!!!!!
For every nickel that you put in equities, you need to be prepared for a 50% downturn. And it could stay down for 10 or 15 or 20 years. The market often goes down 10 or 20% and then comes back up. That happens very often. Dropping 50% occurs less commonly but it’s not rare. If you are in equities it’s not a drop of 8%. You need to be prepared for a drop of 50%. And that might come back to where it was before after a year but it could be 10 years or 15 or even 20 years before it comes back up. in the approximately 220 rolling 20 year time. Periods in the USA stock market there have been a bunch of periods where the market dropped and did not come back for 10 years. How much smaller number of times were the market dropped and did not come back for 15 years and there has never been a 20 year time when the market ended up lower than it started. So if you were planning on holding the money for 20 years, the risk of being down is minimal. If you are planning on holding for 15 years, there is a small risk, but a risk nonetheless. That risk is greater if you need the money within 10 years. It would not be surprising to have a one year or three year or a five year period where you have less than you started with if you are in equities. Money in equities is for long-term investment not less than 10 years.
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Tropical
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Tropical »

@TacoLover

Thanks for the explanation!

1.I would be holding the funds in VTSAX long-term... as in until I die, literally (so it would be held in VTSAX for decades. 100% of ALL the money would NEVER be removed. What I was planning on doing however is living on the 4% rule. Only withdraw 4% so that over the long run my portfolio would continue to grow as only 4% would be taken out for me to retire on. Does this in anyway change your prior thoughts?

2.I am also hearing that the "4% rule is dead"? So I am confused.
Last edited by Tropical on Fri Jun 02, 2023 7:14 pm, edited 1 time in total.
theorist
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by theorist »

Tropical wrote: Fri Jun 02, 2023 6:39 pm Thanks for the replies!

I'm in my mid 40s... I do not have 40 years... I don't have my health etc and cannot until I'm in my 80s (almost dead!) to hit at LEAST 1 million portfolio size with VTSAX.

Based on replies it seems the only risk of me putting 100% of my 500K into VTSAX is as follows:

1. There could be a downturn resulting in the VTSAX to perform TERRIBLY for several years in a row? IF this happens... what the the worst scenario "return rate" I should enter into my compound calculator to accommodate that? Because I NEVER enter 10%. I always use 6% or 7% when looking at numbers using compound interest calculator.
When I enter 500K as initial lump sum investment into VTSAX with 6% return over the next 10 years... that STILL gives me a portfolio of $909,698... that is very good!!!! BUT if there is a bad downturn... does this mean that even my 6% return is NOT enough to counteract the downturn?? If so, what the return percentage I should use?

2.Based on certain replies in this thread it appears that it would not be smart and would be too risky for me to invest the entire 500K into VTSAX because any possible downturn could completely squash my ability to hit 1 million in 10 years from my 500K investment... so how can I "diversify" my VTSAX to avoid this? Get some international VTSAX along with domestic?

3.I have been through some CRAZY crap... and selling during a downturn would not be something I would do. I am a hold long-term person so this is a non-issue for me because what goes down must come back up eventually. What is worst case scenario during a downturn? That the VTSAX portfolio would not only NOT grow at all but go into the RED?? How can 3,000+ companies in the VTSAX all go into the red simultaneously though?? This doesn't make sense to me or seem like a possibility? Hence what makes VTSAX safe during a downturn?

4.During a downturn.. what the the WORST return the VTSAX has given? I HOPE not 0%!? It appears that VTSAX returned -8.78 percent over the past year, 18.35 percent over the past three years. So last year VTSAX was in he RED -8.78 percent!?

Much apologies for my looong post. ALL of the replies is SUPER appreciated!!!!!
1. Zero or slightly negative is quite plausible for a several year period. Very negative is also possible, but my guess is for a decade of severely negative returns to occur, some other problem would have happened that would have us all worried about much more than stock returns.

2. I personally would invest in VTWAX (the analogue to VTSAX for all of the world’s equity markets) — it is about 60% US and 40% foreign stocks right now. But either this, or VTSAX, or some blend (or easier, blend in an international market index) would also make sense. They’re all great ways to bet, in a well diversified way, on the progress of US / world economies.

3. Yes, the market cap weighted returns of 3000 equities CAN be negative over year or longer stretches. 2022 was such a stretch! Note because it is market cap weighted, many of the 3000 companies contribute relatively small amounts to the returns or losses — the biggest stocks do dominate the index to a considerable degree. And in any case, a bad economy can be bad for the majority of the 3000+ companies.

4. Yes, it has been in the red, for periods longer than a year too. If you look at real returns (inflation adjusted) it looks worse, of course.

So good luck. I think investing in VTSAX or VTWAX is a great way to commit your dollars. Less diversified investments may return more, but I’d be very surprised to hear of any opportunity available to most people that has a high probability of significantly outperforming this over a decade. (And typical opportunities that have a reasonable chance of outperforming, also have a reasonable chance of performing much less well…)
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Tropical
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Tropical »

Thanks so much for the replies!

Sorry if this is a dumb question, I just want to confirm, that if I did invest a lump sum of 500K into VTSAX. Is it possible to lose my principal? It appears the answers is yes, if there is a prolonged downturn, it will eat away at my principal? Is there a "setting" somewhere to prevent this? I just don't want to lose my principal (500k) lump sum initial investment as that is my entire life savings. I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!

I have a LOT to learn and am quite a ways away from being knowledgeable enough to invest such a vast sum of course. Trying to learn as much as possible because right now I see that I am clueless! =(
theorist
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by theorist »

Tropical wrote: Fri Jun 02, 2023 7:32 pm Thanks so much for the replies!

Sorry if this is a dumb question, I just want to confirm, that if I did invest a lump sum of 500K into VTSAX. Is it possible to lose my principal? It appears the answers is yes, if there is a prolonged downturn, it will eat away at my principal? Is there a "setting" somewhere to prevent this? I just don't want to lose my principal (500k) lump sum initial investment as that is my entire life savings. I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!

I have a LOT to learn and am quite a ways away from being knowledgeable enough to invest such a vast sum of course. Trying to learn as much as possible because right now I see that I am clueless! =(
Yes, you can lose your principal. All of it, potentially.

There are ways to hedge against loss with options, but a) this results in a regular drag on your portfolio to pay for the options, b) these are efficiently enough priced by those who sell them, that you should expect a net loss if you try this.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by TacoLover »

Tropical wrote: Fri Jun 02, 2023 7:32 pm Thanks so much for the replies!

Sorry if this is a dumb question, I just want to confirm, that if I did invest a lump sum of 500K into VTSAX. Is it possible to lose my principal? It appears the answers is yes, if there is a prolonged downturn, it will eat away at my principal? Is there a "setting" somewhere to prevent this? I just don't want to lose my principal (500k) lump sum initial investment as that is my entire life savings. I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!

I have a LOT to learn and am quite a ways away from being knowledgeable enough to invest such a vast sum of course. Trying to learn as much as possible because right now I see that I am clueless! =(
There has been some thing like 220 rolling 20 year period of time in the United States stock market. There has never been one where after 20 years the market is down. So if your plan is to hold it, no matter what for 20 years, it is extremely unlikely you will end up down. Possible, but extremely unlikely. There have been a few 15 year periods Like this. So if you are holding for 15 years, there is a chance you could be down. There have been a bunch of tenure segments where the market has been down. So if you’re holding for 20 years and will not sell, it is extremely unlikely you will be down. If you’re holding for 15 years, there is a very small chance you will be down. 10 years or less and there’s a decent chance you will be down. There’s always the possibility of losing everything in equities. So you might save yourself be safe and hold it all in cash. Except historically inflation is let’s say around 3% so if you stay in cash every single year, you’re losing 3%. That is not a good option either. So you might see bonds which should keep up with inflation, but will not actually be expected to grow significantly. More risk does not necessarily mean more returns but if you want higher returns, you do have to take more risk. There are different kinds of risks however. There are risks of market downturn, which is what you were taking with equities. And there is risk of inflation which is 100% guaranteed to eat away your money over the course of time if it is not growing.

So for money that you need in the immediate future, let’s say 1 to 3 years you can’t risk it going down in equities. That should be in cash. For money that you need say 3 to 5 years from now or 3 to 10 years from now that could crash if it is in equities, but probably will not. But the risk is too great. So for me, that’s where buns fit in. For money that you need more than 10 or 15 years from now, inflation will eat it away if it is not growing so for me, that money is for equities.

Honestly, the best thing is probably to go to the library and get the Bogleheads books or investing for dummies or something like that. That is where my journey started a long time ago.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Johm221122 »

Tropical wrote: Fri Jun 02, 2023 7:32 pm Thanks so much for the replies!

Sorry if this is a dumb question, I just want to confirm, that if I did invest a lump sum of 500K into VTSAX. Is it possible to lose my principal? It appears the answers is yes, if there is a prolonged downturn, it will eat away at my principal? Is there a "setting" somewhere to prevent this? I just don't want to lose my principal (500k) lump sum initial investment as that is my entire life savings. I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!

I have a LOT to learn and am quite a ways away from being knowledgeable enough to invest such a vast sum of course. Trying to learn as much as possible because right now I see that I am clueless! =(
You can't just worry about loosing principal but loosing from inflation

Just curious but how is this money invested now and what kind of account (taxable or retirement)?
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by OldSport »

4% is "dead" if you "Lean FIRE" and NEED the entire 4% just to make ends meet. Its risk is mainly due to sequence of returns risk, and being forced to sell equities when the market is down, since the funds are needed.

But 4% rule is fine if you choose to "Fat FIRE" and are living on 2-3% (or even less), and the rest is solely for discretion spending (e.g. vacations, experiences, gifts, optional purchases) that you can easily cut back during down years.

I choose to Fat FIRE. My number is $4-5 Million, using 4% rule, since I want to travel. I can Lean FIRE on $2 Million, possibly less if the house is paid off.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Tropical »

Johm221122 wrote: Fri Jun 02, 2023 7:57 pm
Tropical wrote: Fri Jun 02, 2023 7:32 pm Thanks so much for the replies!

Sorry if this is a dumb question, I just want to confirm, that if I did invest a lump sum of 500K into VTSAX. Is it possible to lose my principal? It appears the answers is yes, if there is a prolonged downturn, it will eat away at my principal? Is there a "setting" somewhere to prevent this? I just don't want to lose my principal (500k) lump sum initial investment as that is my entire life savings. I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!

I have a LOT to learn and am quite a ways away from being knowledgeable enough to invest such a vast sum of course. Trying to learn as much as possible because right now I see that I am clueless! =(
You can't just worry about loosing principal but loosing from inflation

Just curious but how is this money invested now and what kind of account (taxable or retirement)?



This money is currently invested in the equity of my primary residence (liability tying down all my equity). I do not need to live in this house anymore (as I will be living with my husband starting next year). If I keep the house and rent it out I will get only about 4.41% ROI with $1970/month cash flow (terrible ROI).

This house was purchased for 590k last year... the value already dropped 50k and I have a 50k mortgage on it (as I paid down almost 100% of it) but the entire house was gutted so I have no choice but to renovate it (new floors, kitchen etc). I was going to hold onto property long term but it doesn't make sense financially as a rental and if I sell it I will lose a LOT of money right now, yet at the same time it does not makes sense keeping it as a rental.

I am not sure what to do! I have nothing invested for retirement. So since I do not need to live in this house ever again... I'm trying to figure out what to do. Either I hold onto it and pay off the remaining 50k mortgage owed so house will be free and clear then and rent it out at which point I would get approx $2,330/month cash flow (4.74% ROI)... or sell house and invest 500k into the VTSAX. But from all the replies here... I am too afraid now to invest 500k into VTSAX! As I will need to use "4% rule" in the VTSAX portfolio in 10 years and it seems that is TOO RISKY for me to count on as 10 years is not enough time.

I expected to hold onto this house for many years... selling it now would mean losing over 100K! But at same time I don't want to hold onto the house that will produce very low ROI as a rental. I am not sure what to do =(
Last edited by Tropical on Fri Jun 02, 2023 8:32 pm, edited 1 time in total.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Tropical »

OldSport wrote: Fri Jun 02, 2023 8:14 pm 4% is "dead" if you "Lean FIRE" and NEED the entire 4% just to make ends meet. Its risk is mainly due to sequence of returns risk, and being forced to sell equities when the market is down, since the funds are needed.

But 4% rule is fine if you choose to "Fat FIRE" and are living on 2-3% (or even less), and the rest is solely for discretion spending (e.g. vacations, experiences, gifts, optional purchases) that you can easily cut back during down years.

I choose to Fat FIRE. My number is $4-5 Million, using 4% rule, since I want to travel. I can Lean FIRE on $2 Million, possibly less if the house is paid off.


Thanks for your reply. When you first started VTSAX did you put a huge lump sum into it? It appears my problem is that the 500K is my entire life savings and I need to either use at least 3% rule with my VTSAX in 10 years... or in that case invest in real estate rentals with cheaper properties that can cash flow with better ROI than my house would as a rental. I need to make sure I don't put everything 100% into VTSAX.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by NashTransplant »

My view for what it’s worth is to put it all in the VTSAX. It is of course true that it can go down and in rare periods take a decade to recover. However, it already is down from highs. It could go lower, of course - but the clock already was set, if you will. Your goal is retire early. The main thing that can go wrong in VTSAX is just that it may take you longer to get to a million. Let’s say the market goes down and is bumpy for the next 8 years. It still will recover and grow and maybe you are at a million in 13 years instead of 10.

More to the point, if the market is so terrible that you haven’t made money in a decade in VTSAX, you won’t have made your goal doing anything else either. Nothing people have written is incorrect - I just think you have a goal that requires taking some diversified risk and I don’t think your idea of the total stock market is crazy.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by AerialWombat »

VTSAX is a fine fund. It’s my only equity holding.

Would I ever want to be 100% equities? Not a rat’s chance in underpants.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by arcticpineapplecorp. »

Tropical wrote: Fri Jun 02, 2023 7:32 pm Thanks so much for the replies!

Sorry if this is a dumb question, I just want to confirm, that if I did invest a lump sum of 500K into VTSAX. Is it possible to lose my principal? It appears the answers is yes, if there is a prolonged downturn, it will eat away at my principal? Is there a "setting" somewhere to prevent this? I just don't want to lose my principal (500k) lump sum initial investment as that is my entire life savings. I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!

I have a LOT to learn and am quite a ways away from being knowledgeable enough to invest such a vast sum of course. Trying to learn as much as possible because right now I see that I am clueless! =(
1. there are no dumb questions.
2. is it possible to lose your principal? Well, if there's a globalthermonuclear war, sure. If the market falls and doesn't recover by the time you need to sell, sure.
3. is there a "setting" somewhere to prevent this? Well, holding a diversified portfolio usually (but not always) means while some things go down, others may go up. There are times when everything's going to heck in a handbasket. But even then some things go down more than others (like last year when stocks went down further than bonds). There's no "setting" to prevent losses because you could put your money in a savings account if you define losses as volatility (in a bank account there's no volatility) but the problem is you're losing to inflation with money in a bank account. So you can lose money slowly (bank account) or deal with losing money quickly (stock volatility). But you can also look to hold non-correlated assets like bonds along with stocks. Doesn't mean you won't have losses, but losses usually are less. Here's an example when stocks fell 50% during 2008-2009:

Image

see how even holding no stocks (100% bonds) still had a drawdown of -5.01%. those bonds that lost money briefly (and less than stocks) came back quicker than stocks and actually ended the year 2008 up +5% whereas vtsax ended 2008 down -38% (the 50% drawdown in stocks or "bottom" occurred in March 2009). But the notion is that when there are losses they're greater for the 100% stock portfolio and generally less when you add in less risk/volatility like bonds offer.

and you have to deal with the intrayear losses that occur EVERY SINGLE YEAR. The chart below shows there were losses every year of the last 42 years but most of those years (75% of the years) markets recovered before the year was up and ended positive for the year (relative to the start of the year):

Image

Source

4. I'm not sure I understand the following thing you wrote:
I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!
but that is your principal that's going up and down when vtsax goes up and down. Or are you saying you're ok with losing money the $500k made (and then lost) but you never want to see your account ever drop back down below $500k? If so, I'm not sure that's realistic for the following reason:

Say you put the $500k in the market (any of the allocations above). The market could fall the day after you make your investment. Immediately then the $500k would be less than $500k.

Reminds me of a story Paul Merriman told about working with a new client who he explained all about risk and how he couldn't guarantee she would make money (because it's up to the market) but he'd guarantee her she would lose money from time to time. She said she understood. She invested with Merriman and the market fell soon after. She came to Merriman and said she was taking her money elsewhere. He said, "I don't understand I told you you could lose money and you said you understood that" and she said, "Yes but I didn't think I'd lose money before I made it!" She was ok with losing "house money" or money she made on her money, but not her principal. Not realistic really.

5. You really have to think about your need, ability and willingness to take risk and then figure out based on that what your allocation should be. Read more here:

How much risk do you need to take: https://www.cbsnews.com/news/asset-allo ... -you-need/
How much risk do you have the ability to take: https://www.cbsnews.com/news/asset-allo ... -you-take/
How much risk do you have the willingness to take: https://www.cbsnews.com/news/asset-allo ... tolerance/
How to deal with conflicts between the need, ability and willingness to take risk: https://www.cbsnews.com/news/asset-allo ... ing-goals/

It sounds like you have a need to take risk (you want to get to $1 million and "only" have $500k). You may or may not have an ability. You don't sound like you have the willingness to take risk with this $500k. So there's some conflicts there. You'll have to sort that out.

6. Is there a reason you need to get to $1 million? Have you looked at what you expect your expenses in 10 years to be and what money you'd have coming in then. Perhaps you do need $1 million to fill the gap. Or maybe you could get by with less. Or maybe you need more. We don't really know. If you edit your post according to Asking portfolio questions you'll get more useful answers.
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 | Wiki
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by KlangFool »

Tropical wrote: Fri Jun 02, 2023 12:51 pm
I would NOT withdraw anything from the VTSAX during the first 10 years.
Tropical,

A) Unless you can predict your future, how do you know that this will be true?

For example, what if you are unemployed in the coming recession and you are unemployed longer than your emergency fund can support you? And, the stock market crashes 50% while you are unemployed.

B) Why would you do this anyhow?

https://investor.vanguard.com/investor- ... allocation

The average annual return for 100% stock is 12.3%
The average annual return for 70/30 is 10.5%

The 1.8% annual return difference over 10 years is not big enough to matter.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by calmaniac »

Tropical,

I think you need to slow down and figure out what is up and what is down and, for that matter, what VTSAX is. The most important thing for you to do is get a bit more educated about investing before making any big decisions.

Financial reward with equities is dependent on taking risks, including the potential to lose principal. There is no way around that. The important thing is to 1. gain enough understanding to minimize that risk, 2. invest with a risk style that fits your natural inclinations.

Reading a few basic investing books will provide some basics: LINK.

FWIW, we were 100% invested in equities (similar to VTSAX) until about 10 years before I got serious about retirement. 100% equities worked well for us, but would keep other people up at night with worry. You need to figure out the proper mix for yourself.
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by arcticpineapplecorp. »

KlangFool wrote: Fri Jun 02, 2023 9:24 pm
Tropical wrote: Fri Jun 02, 2023 12:51 pm
I would NOT withdraw anything from the VTSAX during the first 10 years.
Tropical,

A) Unless you can predict your future, how do you know that this will be true?

For example, what if you are unemployed in the coming recession and you are unemployed longer than your emergency fund can support you? And, the stock market crashes 50% while you are unemployed.

B) Why would you do this anyhow?

https://investor.vanguard.com/investor- ... allocation

The average annual return for 100% stock is 12.3%
The average annual return for 70/30 is 10.5%

The 1.8% annual return difference over 10 years is not big enough to matter.

KlangFool
for the OP it's a difference of:

$1,595,025.77
vs
$1,357,040.42

or $237,984.84

in excel:
=FV(.123,10,0,-500000)
vs
=FV(.105,10,0,-500000)
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 | Wiki
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Johm221122 »

Tropical wrote: Fri Jun 02, 2023 8:22 pm
Johm221122 wrote: Fri Jun 02, 2023 7:57 pm
Tropical wrote: Fri Jun 02, 2023 7:32 pm Thanks so much for the replies!

Sorry if this is a dumb question, I just want to confirm, that if I did invest a lump sum of 500K into VTSAX. Is it possible to lose my principal? It appears the answers is yes, if there is a prolonged downturn, it will eat away at my principal? Is there a "setting" somewhere to prevent this? I just don't want to lose my principal (500k) lump sum initial investment as that is my entire life savings. I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!

I have a LOT to learn and am quite a ways away from being knowledgeable enough to invest such a vast sum of course. Trying to learn as much as possible because right now I see that I am clueless! =(
You can't just worry about loosing principal but loosing from inflation

Just curious but how is this money invested now and what kind of account (taxable or retirement)?



This money is currently invested in the equity of my primary residence (liability tying down all my equity). I do not need to live in this house anymore (as I will be living with my husband starting next year). If I keep the house and rent it out I will get only about 4.41% ROI with $1970/month cash flow (terrible ROI).

This house was purchased for 590k last year... the value already dropped 50k and I have a 50k mortgage on it (as I paid down almost 100% of it) but the entire house was gutted so I have no choice but to renovate it (new floors, kitchen etc). I was going to hold onto property long term but it doesn't make sense financially as a rental and if I sell it I will lose a LOT of money right now, yet at the same time it does not makes sense keeping it as a rental.

I am not sure what to do! I have nothing invested for retirement. So since I do not need to live in this house ever again... I'm trying to figure out what to do. Either I hold onto it and pay off the remaining 50k mortgage owed so house will be free and clear then and rent it out at which point I would get approx $2,330/month cash flow (4.74% ROI)... or sell house and invest 500k into the VTSAX. But from all the replies here... I am too afraid now to invest 500k into VTSAX! As I will need to use "4% rule" in the VTSAX portfolio in 10 years and it seems that is TOO RISKY for me to count on as 10 years is not enough time.

I expected to hold onto this house for many years... selling it now would mean losing over 100K! But at same time I don't want to hold onto the house that will produce very low ROI as a rental. I am not sure what to do =(
We all really don't know what to do, but we pick an asset allocation we can live with. I'm thinking by this information you provided you shouldn't be 100% stocks because I don't think you'll be comfortable with it.

I think you should be more conservative till your confident investing your money. I would have never been 100% stocks when I started. I only do now because I think I can afford the risk
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by bencahill »

Tropical wrote: Fri Jun 02, 2023 6:39 pm I have been through some CRAZY crap... and selling during a downturn would not be something I would do. I am a hold long-term person so this is a non-issue for me because what goes down must come back up eventually. What is worst case scenario during a downturn? That the VTSAX portfolio would not only NOT grow at all but go into the RED?? How can 3,000+ companies in the VTSAX all go into the red simultaneously though?? This doesn't make sense to me or seem like a possibility? Hence what makes VTSAX safe during a downturn?
Tropical wrote: Fri Jun 02, 2023 7:32 pm Sorry if this is a dumb question, I just want to confirm, that if I did invest a lump sum of 500K into VTSAX. Is it possible to lose my principal? It appears the answers is yes, if there is a prolonged downturn, it will eat away at my principal? Is there a "setting" somewhere to prevent this? I just don't want to lose my principal (500k) lump sum initial investment as that is my entire life savings. I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!
I think you need to take a lot of time (at least several months) to think about this, as it sounds like this is all very new to you.

To be clear, a downturn means that VTSAX goes down, as much as 50%. That means if you put 500k in today, and there is a big downturn over the next few months, you could look at your account balance, and it could be 250k. You only lose your money if you sell when it is down. This can be extremely tempting to do, and your statements "selling during a downturn would not be something I would do" and "but my principal (500K) I cannot lose that" are in direct contradiction.

You can run lots of numbers and VTSAX has always gone up over a long enough period, and usually over shorter periods as well, but nothing can be guaranteed. If you cannot stomach your balance going under 500k, you need something a lot safer than VTSAX.

VTSAX has great growth, but it has risk with that growth as well. As I said earlier, a huge risk is yourself, that you will sell when down. If you do this, it would have been better to not have had such a high percentage of stocks.

I think you might do well to read through some of this thread, during the downturn of 2008: viewtopic.php?t=25126
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Charles Joseph »

Nate79 wrote: Fri Jun 02, 2023 3:09 pm What happens if you don't meet your target?
This is the question that must be answered.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Dottie57 »

KlangFool wrote: Fri Jun 02, 2023 9:24 pm
Tropical wrote: Fri Jun 02, 2023 12:51 pm
I would NOT withdraw anything from the VTSAX during the first 10 years.
Tropical,

A) Unless you can predict your future, how do you know that this will be true?

For example, what if you are unemployed in the coming recession and you are unemployed longer than your emergency fund can support you? And, the stock market crashes 50% while you are unemployed.

B) Why would you do this anyhow?

https://investor.vanguard.com/investor- ... allocation

The average annual return for 100% stock is 12.3%
The average annual return for 70/30 is 10.5%

The 1.8% annual return difference over 10 years is not big enough to matter.

KlangFool
This…
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Dottie57 »

KlangFool wrote: Fri Jun 02, 2023 9:24 pm
Tropical wrote: Fri Jun 02, 2023 12:51 pm
I would NOT withdraw anything from the VTSAX during the first 10 years.
Tropical,

A) Unless you can predict your future, how do you know that this will be true?

For example, what if you are unemployed in the coming recession and you are unemployed longer than your emergency fund can support you? And, the stock market crashes 50% while you are unemployed.

B) Why would you do this anyhow?

https://investor.vanguard.com/investor- ... allocation

The average annual return for 100% stock is 12.3%
The average annual return for 70/30 is 10.5%

The 1.8% annual return difference over 10 years is not big enough to matter.

KlangFool
This…at this stage of the game, I would NOT risk 100%. The time for bigger risk was when you were much younger.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by muffins14 »

Tropical wrote: Fri Jun 02, 2023 12:51 pm

Because when I use the compound interest calculator and put in a conservative 6.5% annual return (I always rather underestimate the return), with 500k investment it would reach 1 million in 10 years with $500/month contribution.

I would NOT withdraw anything from the VTSAX during the first 10 years. Only after 10 years would I start withdrawing 4% (hence the "4% rule") and during those years I would be contributing more and more funds (a LOT more than only 500 bucks each month) into the VTSAX every month as my ultimate FIRE number is 2.5M.

Is my above plan foolish/risky to invest 100% in VITSAX?
1) 6.5% is optimistic/aggressive, not conservative
2) spending 40k while adding 6k is going to take a long time, maybe forever, to go from 1M to 2.5M. So, figure that out. Why would be spending 4% of the portfolio while still also adding to it, anyway?
3) VTSAX is fine, but international diversification is theoretically better
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muffins14
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Re: what to do with money for passive income

Post by muffins14 »

Tropical wrote: Fri Jun 02, 2023 12:55 pm [This post merged with OP's similar question in another post. Moderator Pops1860]

Someone in this thread replied "If you really want it to be passive, then invest in a 70/30 stock/bond portfolio and withdraw 3.5%-4% annually."

What about VTSAX? Would that be equivalent? Sorry if my question is dumb, but if "investing in a 70/30 stock/bond portfolio" is better than VTSAX why is that?

Thanks in advance, I'm trying to learn as much as possible.

[Note to OP: It is best to keep all questions/information on a situation together in one thread. This allows members to give a more informed response to your situation. Moderator Pops1860]
I said 70/30 because if withdrawing, it is safer than 100/0. It wasn’t clear if you wanted this money to last 20 years or 40 years
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muffins14
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by muffins14 »

Tropical wrote: Fri Jun 02, 2023 6:39 pm
4.During a downturn.. what the the WORST return the VTSAX has given? I HOPE not 0%!? It appears that VTSAX returned -8.78 percent over the past year, 18.35 percent over the past three years. So last year VTSAX was in he RED -8.78 percent!?
Perhaps consider -75%. And yes, this is losing 3/4 of your principal!

Stocks go up and down, and when they go down, yo no longer own as much of the asset to sell to cash for spending
Last edited by muffins14 on Sat Jun 03, 2023 8:55 am, edited 1 time in total.
Crom laughs at your Four Winds
valleyrock
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by valleyrock »

Nate79 wrote: Fri Jun 02, 2023 3:09 pm What happens if you don't meet your target?
Then it's FIRED. Financially Independent Retire Early, Delayed.

That can be parsed to examine the length of the delay, under various scenarios, how to address it, etc.
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teen persuasion
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by teen persuasion »

Tropical wrote: Fri Jun 02, 2023 7:32 pm Thanks so much for the replies!

Sorry if this is a dumb question, I just want to confirm, that if I did invest a lump sum of 500K into VTSAX. Is it possible to lose my principal? It appears the answers is yes, if there is a prolonged downturn, it will eat away at my principal? Is there a "setting" somewhere to prevent this? I just don't want to lose my principal (500k) lump sum initial investment as that is my entire life savings. I don't care how much my VTSAX portfolio goes up/down with time so long as it hopefully goes up overall in the long-run with time... but my principal (500K) I cannot lose that!

I have a LOT to learn and am quite a ways away from being knowledgeable enough to invest such a vast sum of course. Trying to learn as much as possible because right now I see that I am clueless! =(
Not a dumb question.
It sounds like you think investing in VTSAX is like depositing in a savings account where you earn interest on your deposit and always have the principal in the bank.
Investing in VTSAX means BUYING shares of the mutual fund VTSAX. The price of those individual shares fluctuates daily. Those shares also pay dividends (somewhat like interest payments). You can reinvest the dividends into more shares of VTSAX. But most of the expected growth in your investment hopefully comes from an increase over time in the value of each share you own.

Google VTSAX and look at the chart of its price for different time frames: 5 days, 1 month, 6 months, year to date, 1 year, 5 years, max (you can change this by selecting the appropriate 5D 1M, etc, just above the chart). You can glide your mouse over the chart to show the exact value of ONE share on any date. Look at the 1 year chart: the values range from a high of $105 to lows of $87. That is how much each of our shares of VTSAX have changed in value over that time frame. Now look at the 5 year chart. Notice that the highest point is in late 2021. Current values are down from there. Growth is NOT always a straight line upward in the short term. Look at the max chart - if you follow the chart from 2013-2023, you can see the ups and downs of the past 10 year period. No one knows what the next 10 years will bring.

All that said, we were 100% VTSAX in our accumulation phase. At about age 50 I shifted 30% to bonds to hopefully reduce volatility somewhat. You can reach FIRE in a short period of time with a high savings rate, we got serious about retirement saving only at the age of 43, and DH retired at 55 a couple years ago. We did not have $500k to kick off our stash, maybe $35k at 43, so it was almost all new savings and investment growth.
mdavis6890
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by mdavis6890 »

I think folks are having trouble giving you solid advice because (it sounds like) you are asking for something that doesn't exist, and that you haven't provided a lot of information about WHY, and what the particular significance of your $1M goal is.

There is no guaranteed way to double your money in ten years. You may even lose money, no matter what you do.

There are lot of different good ways to invest your money that will likely have a good outcome, but it's hard to choose one based on what you've shared.

If all you are trying to do is get the highest expected return, subject to a lot of variability - then yeah VTSAX is the way to go. You just ride the waves and hope for the best. If you will need a brain transplant in ten years that costs $1M, but can't be done for $900k, then you need a different strategy which gives you a higher likelihood of getting to $1M, but also has a greater risk of total loss, since $900k == $0 if you don't get the brain transplant.

You're only 40 now. Will you and your husband be unable to work in ten years? What's going on?
Fresh Air
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Fresh Air »

calmaniac wrote: Fri Jun 02, 2023 9:29 pm Tropical,

I think you need to slow down and figure out what is up and what is down and, for that matter, what VTSAX is. The most important thing for you to do is get a bit more educated about investing before making any big decisions.

Financial reward with equities is dependent on taking risks, including the potential to lose principal. There is no way around that. The important thing is to 1. gain enough understanding to minimize that risk, 2. invest with a risk style that fits your natural inclinations.

Reading a few basic investing books will provide some basics: LINK.

FWIW, we were 100% invested in equities (similar to VTSAX) until about 10 years before I got serious about retirement. 100% equities worked well for us, but would keep other people up at night with worry. You need to figure out the proper mix for yourself.
Agreed, take your time to think & learn.

First step- decide if you want to be a landlord. It doesn’t really sound like you do. In this case, prep the house & unload

Second step - house proceeds into a savings or money market account.

Third step - get the two bogleheads books- guide to investing + guide to retirement planning & read through. Take some time on the wiki.

Fourth step - once you understand everything involved for retirement, stocks/bonds/inflation/drawdowns/withdrawals/etc. - write an IPS & execute. https://www.bogleheads.org/wiki/Investm ... _statement
KlangFool
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by KlangFool »

OP,

1) You have 500K to invest.

2) You only adding 6K per year to your portfolio.

3) 500K / 6K = 83 years of annual savings.

4) You do not have 83 years to earn back the money that you lose.

5) You cannot afford to lose substantial portion of this 500K.

6) If you are unemployed or have a financial emergency bigger than your emergency fund, you will have to sell.

7) If this happened during a stock market crash, there is no recovery for you. The lost is permanent.

8) What is your annual expense? 40K per year?

You cannot afford to take the risk of 100% stock. You do not have the ability to take the risk.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Marseille07
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Marseille07 »

Tropical wrote: Fri Jun 02, 2023 12:51 pm PS: I am stuck. Either I invest most of the of the 500k into real estate rentals or VTSAX. VTSAX seems simpler, what I mean is that I do not have enough experience in real estate investing to be confident that it would be the better route and to make long story short, I really need to make the decision in the next few months.
It's a false dichotomy. Don't just consider the extremes; you could do 90/10, 80/20 etc etc not 500K all-in VTSAX or 500K all-in real estate.

Forget the "life savings" idea, what you want to do is to consider your *overall* allocation and stick with it.
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Tropical
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Tropical »

Thanks so much for all the replies they have been very helpful it s REALKY appreciated! Sorry in advance for my long reply below.

I just bought the two bogleheads books (guide to investing) + (guide to retirement planning) and will read it ASAP!!

I am turning 44 yrs old in few months. I do not have my health and have always wanted to retire early. Life is very short and even shorter when you do not have your health. I want to live out in the mountains living a very simple life but I will be forever EXTREMELY stressed by not having "passive income" (I know real estate rentals is not exactly passive but it is "passive" enough when I use property managers to handle rentals. I need to spend majority of my day taking care of my HEALTH, exercising, doing yoga, eating super clean and healthy and avoiding stress of not having passive cash flow is extremely stressful to me (stress is KILLING me)... my worst fear is being super high stressed in a office job cubicle space or as a real estate agent (my worst nightmare).

My finance for past several years (so not actually my "husband") is 20 yrs older than me. I need to ensure that I have my own separate retirement planning in place to protect myself. We could actually never get married and I am 100% fine with that. My finance is retiring in 2 years but it is not enough to support 2 people due to myriad of reasons nor am I interested in leaching off someone else I MUST (must must MUST) have my own individual funds. When I say I want to retire by age 50... I am referring to having at least 5k/month cash flow from my assets (I have NO assets right now) so that I do not have to worry about needing to work a (9 to 5 job at some office). I have never had a job like that. I have always run my own online home business. I want to scale my homebased business to large as it can get so that I can have enough funds for BOTH real estate and VTSAX investing.

I have nothing against being a landlord. I love real estate and all the tax benefits it has in comparison to VTSAX but of course VTSAX is really passive (HUGE advantage compared to real estate). I had rental property before and was actually planning on going full force into real estate investing to reach FIRE with rental properties but I was going to use property management company to handle my rentals. But I do not have the experience or knowledge enough to be confident I can make real estate investing work as well as I am hoping.

I then started googling "VTSAX vs real estate".... then considering my lack of experience with real estate investing, I stared thinking maybe investing MOST of my 500K into VTSAX and only a little into real estate might be better.

1. So in other words I could invest 300K into VTSAX and then have 200K left for real estate investing. Is that a reasonable split? Or perhaps 200K into VTSAX then 300K into real estate because real estate, IF done right, will have MUCH faster yield than VTSAX... but with my chicken brain... I lack confidence.

2. When I said I don't want to lose my 500K principal in VTSAX I was referring to losing the entire 500k (if dropped from 500K to ZERO then I think I might have heart attack if it took 10 years to go from ZERO back up 250k... but it seems this would be EXTREMELY unlikely though so its a irrational fear?). If it dropped from 500K to 250k (this would be ok)... considering I would NEVER sell and hold VTSAX until I literally die. I understand what goes down will eventually go back up, just like real estate it goes up/down/up/down but over the long term it's always increasing.

3. So I guess I need to definitely read those 2 boglehead books and take the next few months to figure out what to do....

My options are:
-SELL my house and then invest the 500k spit between VTSAX and real estate investing in cheaper rental properties. Cheaper houses that will produce better ROI as a rental than the house I am currently living in.
-or KEEP my house and rent it out. I would cash flow about 2k/month or 2,300/month (ish) if I rent out my house depending on whether I use prop manager or not (so I would then need to figure out how to get 3k/month more in order to reach my 5k/month short term goal... I would be almost HALFAY there!!!). I would just need to get a few other rental properties. The house I live in now is too expensive of a house... hence it's really not the best property to keep as a rental.

My ultimate goal is 10k/month cash flow from assets (VTSAX/real estate).... my short term goal is 5k/month by age 50... then work like a dog until I hit my ultimate goal so I can then relax and enjoy life.

I CANNOT end up like my 77 yr old mother who cannot enjoy her life retiring in poverty (it is MISERABLE!!!) because she NEVER invested! When I enter 500k investment into compound interest calculator for VTSAX with 5% return (and $500 monthly contributions) ... in 30 years that would be a portfolio of 2.6 million. My FI number is 2.5M. So my thinking was... if the you know what hits the fan (WORST case scenario) that at least I will be OK and NOT end up like my mother!! I feel awful for not being able to help either!! :(

I just imagine... if my mother had simply invested into VTSAX and she COULD have... instead of being in poverty in old age now she could have had a 2.6 milling dollar portfolio to live off of!!

OMG. I am incredibly sorry for my ridiculous loooong post! Thanks for reading.
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by KlangFool »

Tropical wrote: Sat Jun 03, 2023 11:20 am
I am turning 44 yrs old in few months. I do not have my health and have always wanted to retire early. Life is very short and even shorter when you do not have your health. I want to live out in the mountains living a very simple life but I will be forever EXTREMELY stressed by not having "passive income" (I know real estate rentals is not exactly passive but it is "passive" enough when I use property managers to handle rentals. I need to spend majority of my day taking care of my HEALTH, exercising, doing yoga, eating super clean and healthy and avoiding stress of not having passive cash flow is extremely stressful to me (stress is KILLING me)... my worst fear is being super high stressed in a office job cubicle space or as a real estate agent (my worst nightmare).

I am referring to having at least 5k/month cash flow from my asset
Tropical,

Where does your annual expense of 60K per year comes from?

That is much more than a simple life in the mountain.

What is your current annual expense?

A) You only have 500K now.

B) You plan to save 6K per year.

C) You want to spend 60K per year in 10 years when you are 50 years old.

There is no way for you to reach your goal unless you strike a lottery.

Let's start with the basic.

1) What is your current annual expense?

2) How do you come up the estimate of 60K per year?

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Marseille07
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Re: Investing only in VTSAX to reach F.I.R.E... too risky?

Post by Marseille07 »

Tropical wrote: Sat Jun 03, 2023 11:20 am Thanks so much for all the replies they have been very helpful it s REALKY appreciated! Sorry in advance for my long reply below.

I just bought the two bogleheads books (guide to investing) + (guide to retirement planning) and will read it ASAP!!

I am turning 44 yrs old in few months. I do not have my health and have always wanted to retire early. Life is very short and even shorter when you do not have your health. I want to live out in the mountains living a very simple life but I will be forever EXTREMELY stressed by not having "passive income" (I know real estate rentals is not exactly passive but it is "passive" enough when I use property managers to handle rentals. I need to spend majority of my day taking care of my HEALTH, exercising, doing yoga, eating super clean and healthy and avoiding stress of not having passive cash flow is extremely stressful to me (stress is KILLING me)... my worst fear is being super high stressed in a office job cubicle space or as a real estate agent (my worst nightmare).

My finance for past several years (so not actually my "husband") is 20 yrs older than me. I need to ensure that I have my own separate retirement planning in place to protect myself. We could actually never get married and I am 100% fine with that. My finance is retiring in 2 years but it is not enough to support 2 people due to myriad of reasons nor am I interested in leaching off someone else I MUST (must must MUST) have my own individual funds. When I say I want to retire by age 50... I am referring to having at least 5k/month cash flow from my assets (I have NO assets right now) so that I do not have to worry about needing to work a (9 to 5 job at some office). I have never had a job like that. I have always run my own online home business. I want to scale my homebased business to large as it can get so that I can have enough funds for BOTH real estate and VTSAX investing.

I have nothing against being a landlord. I love real estate and all the tax benefits it has in comparison to VTSAX but of course VTSAX is really passive (HUGE advantage compared to real estate). I had rental property before and was actually planning on going full force into real estate investing to reach FIRE with rental properties but I was going to use property management company to handle my rentals. But I do not have the experience or knowledge enough to be confident I can make real estate investing work as well as I am hoping.

I then started googling "VTSAX vs real estate".... then considering my lack of experience with real estate investing, I stared thinking maybe investing MOST of my 500K into VTSAX and only a little into real estate might be better.

1. So in other words I could invest 300K into VTSAX and then have 200K left for real estate investing. Is that a reasonable split? Or perhaps 200K into VTSAX then 300K into real estate because real estate, IF done right, will have MUCH faster yield than VTSAX... but with my chicken brain... I lack confidence.

2. When I said I don't want to lose my 500K principal in VTSAX I was referring to losing the entire 500k (if dropped from 500K to ZERO then I think I might have heart attack if it took 10 years to go from ZERO back up 250k... but it seems this would be EXTREMELY unlikely though so its a irrational fear?). If it dropped from 500K to 250k (this would be ok)... considering I would NEVER sell and hold VTSAX until I literally die. I understand what goes down will eventually go back up, just like real estate it goes up/down/up/down but over the long term it's always increasing.

3. So I guess I need to definitely read those 2 boglehead books and take the next few months to figure out what to do....

My options are:
-SELL my house and then invest the 500k spit between VTSAX and real estate investing in cheaper rental properties. Cheaper houses that will produce better ROI as a rental than the house I am currently living in.
-or KEEP my house and rent it out. I would cash flow about 2k/month or 2,300/month (ish) if I rent out my house depending on whether I use prop manager or not (so I would then need to figure out how to get 3k/month more in order to reach my 5k/month short term goal... I would be almost HALFAY there!!!). I would just need to get a few other rental properties. The house I live in now is too expensive of a house... hence it's really not the best property to keep as a rental.

My ultimate goal is 10k/month cash flow from assets (VTSAX/real estate).... my short term goal is 5k/month by age 50... then work like a dog until I hit my ultimate goal so I can then relax and enjoy life.

I CANNOT end up like my 77 yr old mother who cannot enjoy her life retiring in poverty (it is MISERABLE!!!) because she NEVER invested! When I enter 500k investment into compound interest calculator for VTSAX with 5% return (and $500 monthly contributions) ... in 30 years that would be a portfolio of 2.6 million. My FI number is 2.5M. So my thinking was... if the you know what hits the fan (WORST case scenario) that at least I will be OK and NOT end up like my mother!! I feel awful for not being able to help either!! :(

I just imagine... if my mother had simply invested into VTSAX and she COULD have... instead of being in poverty in old age now she could have had a 2.6 milling dollar portfolio to live off of!!

OMG. I am incredibly sorry for my ridiculous loooong post! Thanks for reading.
I mean...what kind of real estate are you even looking at? Can you really split the 500K into 300K VTSAX and 200K real estate?

I also don't understand why you want to sell your house. Having a place to live is pretty important, and investing should be done outside of your housing cost.
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