@momsquad, Robert Shiller knows a lot more than I do, but if the US market is artificially inflated due to low yields on fixed income investments, how does he reconcile that with European 10 year yields (Germany: 0.38%, France: 0.70%, Italy: (1.6%), etc.). US 10 yields are around 2.1% now, which I believe is higher than the ones I mentioned, and uh, their market is down while ours is up.
I’m not saying that the US market isn’t fully priced, or that the European market isn’t over sold, but fixed income yields doesn’t seem to be the reason.
Robert Shiller tends to run towards the pessimistic side. He may be correct though. He is talking about returns on a longer term basis.
There are a lot of moving parts. Clearly corporations benefit from the low interest rates as their costs are lower. The competition for stocks from fixed rates is weak.
Our economy is growing faster than Europe’s. Our inflation rate is higher than Germany’s. So…no surprise our interest rates are higher.
I think he’s just referring to value and the fact that persistently low long term interest rates have driven many to put their money in the stock market in search of growth. Working Europeans have much better government/private sector (pension) support for retirement and rely less on their own investments, hence I suspect the markets are less affected by LT interest rates. Total speculation on my part based on experience in northern Europe. Just checked the exchange rate, the Euro is down to $1.14. Most large companies have global presence now, making it more tricky to diversify.
We haven’t bailed out of International completely, but it’s one of those sectors where I tend to invest about 10% of my assets. DH changed his allocations a few years ago to add some international to the mix, and we never reevaluated as that grew to be a larger proportion of his total balance.
It’s not a disaster at all, but it does make it clear that my decision to organize all of this stuff is rather timely!
Does anyone have a link to guidelines as to how much one should have in retirement assets vs. non-retirement? We are very heavily tilted towards retirement accounts and home equity.
No link, but I think generally, after an emergency fund in taxable, load up tax-advantaged and then put whatever’s left (hopefully there is some) into taxable.
That’s what we’ve been doing. DH is maxed out, but we are of differing opinions about whether I should make non-deductible Roth contributions. Now that we are FINISHED!!! paying tuition, I’m looking at where/how we should throw those funds – paying off mortgage, taxable investments, Roth IRA, etc.
Part of this exercise is also to have things organized so we can get wills done. Thirty one years of marriage and we still don’t have one.
A huge factor about pre-65 (pre-Medicate) retirement that some couples have not considered is that self-pay on medical insurance / expenses. It could cost tens of thousands per year.
I’m mentioning it again because we may have some newbies on the thread.
“I’m looking at where/how we should throw those funds – paying off mortgage, taxable investments, Roth IRA, etc.”
@CountingDown, look at it this way—if you’re comparing Roth to taxable investments. You can choose between paying taxes on your gains when you withdraw, or not paying taxes on your gains when you withdraw. Pay taxes, or never pay taxes. I’m not sure why anyone would choose taxable investments over a Roth, unless they needed to withdraw the gains before five years.
I hear you about the wills. We just finished our will. Youngest is college freshmen and oldest is college grad. What always stopped us on the will was we could never decide on kids guardians. We struggled with the pet guardians in our current will. Have almost completed the trust document (from nolo) but will take to estate planning attorney to make sure i’s dotted.
One more place to throw money is in an HSA. Tax free in and tax free out (if used for medical expenses) and tax free growth. I have mine invested in Vanguard. It will help with medical insurance expenses as I hope to retire prior to medicare and for medicare premiums post 65.
Can you set up an HSA account as an individual?
I am asking because my D’s insurance from her new job is woefully inadequate and her employer doesn’t provide any pre-tax flexible spending account.
Ummm…with my medical bills, no way we are going with high-deductible insurance. Our OOP is about $8500/year, so we’d never get anything saved through a HSA.
Yeah, I knew Roth was only after-tax – DH doesn’t want to throw $$ into retirement unless it’s pre-tax. I wouldn’t be pulling out Roth $$ before retirement in any event, so to me, it’s a “why not do it?” thing. I think I will make that proposal as part of my State of the Household presentation. Need to go read regs on how Roths are treated after death. No guarantees I’ll get to retirement.
One article I read that made sense was to consider how much NET income you will need to make up from your investments, after whatever pension and any other income you receive and whatever SS or other benefits you (& any partner) qualify for vs your projected expenses in retirement. If people have very low post-retirement projected spending, it’s not as crucial to have as large an investment account or as high a net return on those investments.
For example, if you will be getting $15K/year in SS, $5K/year in pension and your spouse will get similar amounts, you are already up to receiving $40K/year. If you project your after-retirement expenses at $50K/year, you only need to earn enough to be able to draw that $10K every year for the rest of your lives, xx years. That’s a much lower and less scary number than xx times your total highest income, and makes more sense.
It is also helpful to have a bit more saved for unexpected but predictable expenses, like higher medical expenses as we age, up to $250K or more per person in their lifetimes.