Case Study #17: Buying into the market right before a Bear

Photo by anvesh baru

If you are surprised to see two “case study” posts from me in a row, your reaction is no more than my own.

For the last one it could be charged that I succumbed to flattery and bribery in taking it on. No case to be made for that here, as you’ll see.

This comment appeared on a post I wish they had read before investing.

From Mr. Pink…

My sister is 50 years old and recently became disabled. 

Over the past 30 years, she has managed to save $618,000 by saving most of her salary. 

She has never invested in the stock market. She believes the stock market is worse than gambling. 

Because she is unable to work now, she became very concerned that she will outlive her money, so she met with three financial planners and took their advice and on 12/01/2021 invested $600k into the VFORX (Vanguard Target Retirement 2040 Fund). 

Although this is a ‘Target Retirement” fund, because she is disabled and not working now, she had to invest it in a ‘taxable’ account. She wanted to invest the money little by little over the next few years AKA dollar cost averaging but was advised that she would benefit more by just doing a lump sum investment and have more time in the market with that large sum of money. 

The financial planners told her that Vanguard has been around forever, they are very well respected in the industry, they created the index fund, and have very low fees. 

They explained VFORX also invests in bonds, and told her bonds move in opposite directions as equities so even if the stocks go down, the bonds will go up. 

Last I checked, the bonds within VFORX are also down 9.1%. My sister received $94,187 in capital gains taxes (yes you read that correct, NINETY FOUR THOUSAND ONE HUNDRED EIGHTY SEVEN DOLLARS.) The capital gains were roughly 40 times higher than the amount in 2020 for VFORX. 

I believe there is a Class Action Law Suit filed against Vanguard because of this. You can read about it here.

I told my disabled sister who saved for 30 years to accumulate 618K only to get hit with a huge capital gains tax and to see it go down over 19% in 6 months, not to worry because…

The Market Always Goes Up.

My Take

Wow. There is a lot to unpack here. Broadly speaking, there are three issues:

  • Was investing her $600,000 as a lump sum a bad idea?
  • Was VFORX a poor fund choice? 
  • Was Vanguard a poor choice? 

So, did Ms. Pink get bad advice from her three advisors? We’ll look at each of those questions in turn, but let’s start with a couple of caveats.

The first is, we don’t know exactly what she told them or what guidance she provided. We also don’t know if these were three advisors working together in the same firm or three distinct advisors who separately came up with the same advice.

Presumably, the advisors would have asked why she wanted to invest her money and she would have told them what Mr. Pink tells us:

“Because she is unable to work now, she became very concerned that she will outlive her money”

While the last six months have been tough on her portfolio, with that guidance, overall I’d say the advice was sound. But not entirely, as we’ll see.

Let’s take a closer look.

Was investing her $600,000 as a lump sum a bad idea?

With the benefit of hindsight, clearly Ms. Pink would have been better off had her advisors used the “Dollar Cost Average” (DCA) approach to slowly deploy her capital over time. Doing so, she would have accumulated her shares at lower prices than what she paid in December. But this assumes the prices after December would in fact be lower, something her advisors could not have known at the time.

So, what were the odds the price of her shares would be lower? Turns out, only ~25% of the time. The other ~75% of the time, stock prices rise.

Since the only time you benefit from using DCA over investing the lump sum is when share prices decline, you are making a bet with a 25% chance of winning.

Of course sometimes that 25% pays off, as it would have in this case. But back in December the advisors didn’t have the benefit of today’s hindsight. Back then going with the 75% chance lump sum investing offered looked to be the better choice. It was.

For more on this see: Why I don’t like Dollar Cost Averaging 

Was VFORX a poor fund choice? 

Again, with the benefit of hindsight, sure. It is down 15.5% as of July 21st as I am writing this post. That is slightly better than the market overall –the S&P 500 is down 17.5%.

VFORX  is a “Target Retirement Fund” (TRF) and, while I am not wild about these I do think they are a good fit for some people. People like Ms. Pink for example.

They provide a mix of stock and bond funds that automatically become more conservative (i.e. more bonds) as they get closer to the retirement date. In this case, 2040. So Ms. Pink never has to worry about adjusting her asset allocation as time goes by.

TRFs make long-term investing just about as simple as it can possibly be, which for someone like Ms. Pink is an important consideration.

Here is my full take on TRFs

TRFs are what is know as a “fund of funds” — that is the fund holds other funds.  This is what VFORX (Vanguard’s Target Retirement 2040 Fund) holds:

  • 47% VSMPX (this is the institutional version of VTSAX – US stocks)
  • 32%  VGTSX (international stocks)
  • 14% VTBIX  (this is the institutional version of VBTLX – US bonds)
  •   6%  VTILX (international bonds)

What we have here is an allocation of ~80% stocks/20% bonds.

Now this is the same allocation I have with my stocks and bonds, and I consider it fairly aggressive. Too aggressive for Ms. Pink, based on what Mr. Pink has told us.

Staying with a TRF, others from Vanguard look like this:

  • VTHRX (Vanguard’s Target Retirement 2030 Fund) is ~65% stocks/35% bonds.
  • VTTVX  (Vanguard’s Target Retirement 2025 Fund) is ~60% stocks/40% bonds.
  • VTWNX (Vanguard’s Target Retirement 2020 Fund) is ~44% stocks/56% bonds.

I probably would have chosen VTTVX, because without the growth of at least 50% in stocks portfolios have a hard time lasting for decades. (See my 4% Rule post)

But all this will be splitting hairs for Mr. Pink. His complaint is that bonds have performed poorly unlike what the advisors said:

“They explained VFORX also invests in bonds, and told her bonds move in opposite directions as equities so even if the stocks go down, the bonds will go up.” 

Of course, in this he is correct. But I would make a couple of observations, none of which are likely to make him feel better.

  • Bonds going down in tandem with stocks is unusual and is a function of rising interest rates implemented in the face of inflation.
  • Investing is inherently risky and doesn’t always go to plan.
  • Bond funds will recover. They have the advantage of some bonds in the portfolio always reaching maturity freeing up the cash to buy the new, higher yielding bonds being now offered. 
  • The key, as with stocks, is to stay the course.
Was Vanguard a poor choice?

Looking at the link Mr. Pink provided, it really does look like Vanguard stepped in it on this one.

The article Mr. Pink links to gives an excellent explanation, but here is what happened in a nut shell.

Like most of their funds, Vanguard offers “Institutional” versions of their TRFs. 

Institutional Funds are aimed at 401-K type plans and have very large initial investment requirements. In exchange, these funds also offer lower expense ratios (ERs).

Vanguard, attempting to make these cheaper funds available to smaller companies, dramatically lowered the threshold. As the article says…

“In December 2020, Vanguard lowered the plan-level minimum investment requirement for the Institutional Target Retirement Funds to $5 million from $100 million. Now, as long as an employer’s 401k plan had $5 million in assets across the entire plan (not just one person), they could now access the much cheaper Institutional version… a big savings for possibly thousands of small businesses.”

As well intentioned as this probably was, it triggered an unintended consequence: It worked too well.

Evidently massive amounts of money moved from TRFs like VFORX to their institutional twins which caused massive selling in the funds. And that caused massive capital gains then passed on to the fund shareholders.

For those holding these funds in an IRA or 401-K, this was a non-event. No taxes would be due.

But for those like Ms. Pink, who owned the fund in a taxable account, it was a rude and expensive surprise. A surprise compounded for Ms. Pink in that her advisors put her into the fund in December, right before capital gains for the year are distributed.

While her advisors couldn’t have known this uniquely massive capital gain distribution was coming, it is basic common sense to avoid buying a fund right before capital gains and dividends are paid out. Doing so simply returns some of your money to you with a tax due.

There is no telling how this lawsuit will play out, but perhaps Mr. Pink and his sister can take some consolation in the fact his math on this is wrong when he says:

“My sister received $94,187 in capital gains taxes…”

What she received was $94,187 in capital gains, which are then subject to tax.

From the article, the capital gain paid out on VFORX was 15.55%. That percentage x the 600k she has in the fund would = $93,300. Mr. Pink’s $94,187 is probably due to her having a bit more than 600k in the fund.

That $94,187 in capital gains would be subject to the capital gains tax at a rate determined by Ms. Pink’s tax bracket. The capital gains rates for 2021 (the year she booked the gain) look like this:

If you are single and your taxable income is… 

…below $40,400, the capital gain rate is 0%

…between $40,401-$445,850, the capital gain rate is 15%

…over $445,851, the capital gain rate is 20%

If you are married and your taxable income is… 

…below $80,800, the capital gain rate is 0%

…between $80,801-$501,600, the capital gain rate is 15%

…over $501,601, the capital gain rate is 20%

Based on what we know, my best guess is Ms. Pink will be in the 15% bracket. 15% x $94,187 = $14,128 tax due.

Still a pretty swift kick no doubt, but considerably less than the one Mr. Pink was expecting.

So, that’s my read on those three major issues:

Unlucky timing, but overall good advice with two exceptions — The allocation in VFORX is a bit aggressive in my judgement and buying it right before the capital gain distribution.

But there is another question that dwarfs the considerations above…

Should the advisors have put Ms. Pink in the market at all?

Probably not. At least not without preparing her for what to expect.

After all, Mr. Pink tells us his sister has been saving “most of her salary” for 30 years and that…

“She has never invested in the stock market. She believes the stock market is worse than gambling.” 

He doesn’t tell us where she has been putting this money, but he does say that with her disability “…she became very concerned that she will outlive her money.”

This suggests she has been in low return investments like CDs or savings accounts. She probably has been watching the stock market provide handsome returns and had finally decided to reach for those herself.

Unfortunately, it also sounds as if she and Mr. Pink don’t really understand how the market works. He closes, after all, with a sarcastic…

“I told my disabled sister who saved for 30 years to accumulate 618K only to get hit with a huge capital gains tax and to see it go down over 19% in 6 months, not to worry because…

“The Market Always Goes Up.”

That last line being a shot at me as it is one I am famous for. See, I told you, unlike the last case study, I didn’t chose this one for the flattery and bribery.

Of course, it is possible that I am misreading the tone here and this close is not sarcastic at all but rather an astute observation. 

But I doubt it.

Mr. Pink doesn’t ask for my advice, this is more about venting his frustrations. But for any of you who might be curious what it would be, here it is.

No question his sister got off to a very rough start, but the fund she is in is a reasonable choice and she should stay the course. If she wanted to get a bit more fancy, she could sell it, book the capital loss and buy one of the more conservative TRFs I mentioned above.

She could also do this if, as I fear, she has already sold out and locked in her losses.

But before she does anything, she should educate herself on this market stuff. And at the risk of being immodest, the Stock Series on this blog is the perfect place to start.

If she had done this before investing, she would have known that market drops like this recent one are perfectly normal, to be expected, and they don’t last forever.

Market crashes are to be expected. 

They are the price we must pay for the long-term gains we seek.

What has happened these last six months is a perfectly normal part of the process. It has been mild as these things go, barely tipping into the -20% bear territory a couple of times. Much more gentle than the crash of 2008-9.  It has happened before and it will happen again. And again. This is the nature of the beast and it is the topic covered in the very first post of the Stock Series:

There is a Major Market Crash Coming

Before investing, she should have also read this post:

Why You Should NOT be in the Stock Market

As someone who “…believes the stock market is worse than gambling” there is a pretty good chance she shouldn’t be.

At least, in reading that post, she would have heard me say…

“If you are going to follow The Simple Path to Wealth described on this blog and in my book, it is critical that when the market plunges you ignore it and stay the course. If you don’t, if your nerve fails and you sell in the panic all around you…

“The advice on this blog and in my book will leave you bleeding by the side of the road.”

I like that last line so much, I have used it routinely in interviews and in other posts like this one.    

“If you panic and sell when the market drops, my advice here on the blog and in my book will leave you bleeding by the side of the road.”

What’s done is done. What matters now is what Ms. Pink chooses to do going forward.


Addendum: Free books!

Doc G. & me

If you have read this far, you deserve a reward!

That’s Doc G., who we all know now is really the soon-to-be-famous author Jordan Grumet, hanging out with me at Kibanda. That comes with a price.

With a small bit of arm twisting (I promise no Grumets were injured in the making…) I have managed to secure two print and one audible copies of his new book…

Taking Stock: A Hospice Doctor’s Advice on Financial Independence, Building Wealth, and Living a Regret-Free Life

…to give away!

They go to the first people to ask in the comments below. Be sure to specify which version you’d like.

If you aren’t lucky or quick enough to get it free*, it is well worth buying. Hit the link below.

 *They have been taken — spoken for instantly


Subscribe to JL’s Newsletter

Important Resources

  • Talent Stacker is a resource that I learned about through my work with Jonathan and Brad at ChooseFI, and first heard about Salesforce as a career option in an episode where they featured Bradley Rice on the Podcast. In that episode, Bradley shared how he reached FI quickly thanks to his huge paychecks and discipline in keeping his expenses low. Jonathan teamed up with Bradley to build Talent Stacker, and they have helped more than 1,000 students from all walks of life complete the program and land jobs like clockwork, earning double or even triple their old salaries using a Salesforce certification to break into a no-code tech career.
  • Credit Cards are like chain saws. Incredibly useful. Incredibly dangerous. Resolve to pay in full each month and never carry a balance. Do that and they can be great tools. Here are some of the very best for travel hacking, cash back and small business rewards.
  • Empower is a free tool to manage and evaluate your investments. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you'll see what's working and what you might want to change. Here's my full review.
  • Betterment is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review
  • NewRetirement offers cool tools to help guide you in answering the question: Do I have enough money to retire? And getting started is free. Sign up and you will be offered two paths into their retirement planner. I was also on their podcast and you can check that out here:Video version, Podcast version.
  • Tuft & Needle (T&N) helps me sleep at night. They are a very cool company with a great product. Here’s my review of what we are currently sleeping on: Our Walnut Frame and Mint Mattress.


  1. Brian G says

    I’d like a copy of the ‘Taking Stock’ book if available. And thank you for putting this post together – excellent read.

  2. Mark says

    I am not one to panic and have followed your advice. I have also purchased your previous book on your condo fiasco years ago. Because I was once a teacher , and by nature teachers care, I feel that you are genuine in your advice and truly care that people invest and do well!

    Thank you,


    Mark S.

  3. Juan says

    I’d like a printed version if still available, please 🙂

    BTW – really unfortunate situation. The definition of bad luck, coupled with perhaps lack of education. Hope she recovers.

  4. Patrick ODonnell says

    Similar situation occurred with my mother, who finally sold her individual stocks and index invested in Nov. 2021. She’s been questioning her decision ever since. On paper, she has made the correct choice most likely to deliver risk adjusted returns. But emotionally, she’s been frustrated with the market “going down”. I give her pep-talks and someday we’ll have to do JL’s guided meditation.

    I’d love one of the copies of Taking Stock in print version. Looking forward to reading it!


  5. James says

    Good post and a reminder to know before you go. If you still have a print copy of Jordan’s book available, I’d love to give it a read. Thanks

  6. Victor Muslin says

    Thanks for the blog. Ver enlightening!

    I would like a print copy of Doc G’s book if possible.

    Thank you

  7. Sam McCoy says

    Hey JL! I’d love a printed copy of Taking Stock, if it’s still available! Thanks so much for all you do for the FIRE community.

  8. A Purple Life says

    Interesting write up! Just a heads up I think you meant “VTWNX (Vanguard’s Target Retirement 2030 Fund) is ~44% stocks/56% bonds” to be “Vanguard’s Target Retirement 2020 Fund”. You have 2030 up there twice 🙂 . I hope you’re having a great day!

  9. Casey says

    Sir, I would love a copy of Taking Stock if able. Print would be #1 choice, followed by Audio. Thank you kindly!

  10. Wayne Foreman says

    Mr. Collins,

    Just wanted to thank you. I’ve loved reading “The Simple Path to Wealth” and genuinely appreciate this periodic updates… both the “bribery” ones (grin) and this type.

    I oftentimes find myself thinking that I should take a more active role in my investing strategy, but, thinking about “Simple Path to Wealth” and these updates keep me focused and on track.

    Thank you so much!


  11. Fred says

    JL – One of the toughest things for people like Ms. Pink is that she must reckon with the bad decisions she’s previously made and decide how she’s going to handle her false thinking going forward.

    1) She’s spent likely around 30 working years OUT of the best performing asset class of all time because she “believed” it was akin to gambling. This false belief has cost her handsomely. In 1992, the S&P500 was at 416. Today, after losing almost 20% of its value, it is at 3970 – about 9500% higher, and that doesn’t include all the dividends its paid out over the last 30 years. Had she been in the market over this time, she’d likely have at least double the amount to her name as what she has – maybe 3x/4x depending on how she earned/saved over these years. Imagine losing over $1 million because of a false belief.

    2) Assuming her life expectancy is not impacted by her disability, she can expect to live maybe another 40 years. Is she willing to forego what will likely be another 9500% return over that time? As you say in your book – best to get your psychology in line with the numbers, rather than to bend your behavior to your bad emotions. The reality is, the stock market (or real estate, or some other asset that can make her capital productive) is the ONLY real option for her long-term. If she doesn’t make the right decision, she will likely end up on Government assistance or dependent upon the goodness of family.

  12. Bryan Harrison says

    Clearly late to the party – but I like to party. Print book of we restock the prize vault.

  13. Tim De Prijcker says

    Too late to request a print copy of Taking Stock, unfortunately.
    Nevertheless I’d like to take the opportunity to thank you JL. Your book has been the last important piece of a lifelong puzzle that my Dad and I made, partly together. We already ‘knew’ most of it, but your book gave the overview and provided worthy new insights to us.
    Sincerely, thank you, and thanks also for remaining so down to earth, as Belgians tend to like. 😉
    Best regards, Tim De Prijcker

  14. Steveark says

    The pat answer about not dollar cost averaging because 75% of the time the market is going up has never satisfied me. What I haven’t ever found is what percent of the time does the market go up at various P/E ratios or some other metric of the relative stock price vs earnings. I agree the market was way overpriced and while less so now is still on the pricey side. I would think that based on where P/E was in January, if compared to the past times it hit that high, that dollar cost averaging might make more sense because surely overpriced markets have less chance of continuing an upward trajectory? I dollar cost averaged my 401K into index funds six years ago and it cost me a lot of lost growth.

  15. Greg says

    My view is that a single fund for that much money is wrong advice. Maybe if you only have $10,000. A much better plan could have been offered and more tax efficient.

    If there is a second round of Jordan’s book version to be offered, I’d like to be included. A similar named book by Ellis Traub called Take Stock is one of my favorite books.

  16. JDaveF says

    Vanguard should be deeply ashamed of their mismanagement of VFORX in individual accounts, and it WAS mismanagement. It should make all individual investors whole again WITHOUT the need for filing lawsuits, which will mainly enrich lawyers, and not Vanguard’s wronged clients.
    Vangaurd’s behavior so far has been disgraceful, and I am seriously considering moving my accounts to Fidelity.

  17. Tom Erceg says

    Once again Jim, thank you for what you do. This is the first bear market of my life that I haven’t freaked out about. I’m down %20 in my VTI, but I’m sleeping just fine. I haven’t touched anything, and I won’t touch anything.

  18. Alex V. says

    JL, I got a chuckle out of this post, as I was also bitten by not one but both of the issues Mr. Pink described.

    Back in December, I received a rather large and unanticipated capital gains distribution for some shares of VFORX which I had purchased in the days before discovering The Simple Path to Wealth and was, unfortunately, holding in a taxable account. Slightly poorer but much wiser for the experience, I immediately sold those shares and purchased more VTSAX. A few weeks later, on January 12, and not far off the market’s peak, I received an unexpected windfall and invested the lump sum in VTSAX. Needless to say, it’s been trading somewhat lower than what I paid every single day since.

    However, I am not overly concerned about either of these events because… The Market Always Goes Up, and I’m in for the long haul. I credit my peace of mind about this in no small part to you and The Simple Path.

    Thanks for all you do,

  19. Physician on FIRE says

    The travesty I see is not that she invested in a Target Date Fund in December, although that wasn’t a great move for all the reasons detailed above. It’s that for three decades, she missed out on massive potential gains due to a fear or poor understanding of how the stock market works.

    Hindsight is 20/20, but if she had been investing primarily in the stock market rather than instruments that might barely keep up with inflation, I’m guessing she’d have several million dollars now — if you factor in the tax-inefficiency of interest-bearing accounts as compared to a buy-and-hold strategy with index funds, she might have 5x-10x with some large unrealized gains.

    I’ve already got Taking Stock — it’s excellent — count me out for the raffle.


  20. Kristine Kiser says

    Hello JL,

    Many times when the market goes down I hear you in my head, the market goes up, goes down and back up. Thank you so much for writing The Path To Wealth, otherwise I would have made more very unwise decisions. I’m too late to request either book or audio so I’ll wait to buy the book at a later date. Thanks for these posts always thought provoking and I enjoy you’re writing style.

    Best Wishes,

  21. Tim says

    Your Republic Wireless link at the end of the post is not working. Just when I needed it. My soon-to-be previous carrier appears to be AWOL. Want to try Republic based on your recommendation.

    • dandarc says

      Wouldn’t be surprised if them selling out to Dish Network impacted things like affiliate programs. Honestly their base-price is not as good a deal as it used to be – $20 / month per line is the cheapest plan, but only if you have Dish – double that for non-Dish customers. That actually was the lowest price on offer for 4.0 plans, except you could choose to pay annually and get 2 months free every year, so closer to $17 / month average.

      On the other hand it is nice for my phone number to finally work with Venmo and other bank-link things that require a “real” cell phone number vs. the VOIP it was on the 4.0 and earlier Republic plans.

      “Republic Members who enrolled prior to 5/10/2022 are eligible for DISH customer rates.”

      And I was actually really lucky – I got in on a 2 lines for $30 / month price earlier this year because my wife lost her phone and we had to upgrade to the new 5.0 plans to get her replacement phone working. I cannot find that offer anywhere today and I only signed up for it 2 or 3 months ago.

      Also the Republic app is no more, which usually is a small loss except now you have to manually configure a bunch of stuff if you bring your own device – doable but quite a bit of typing in a settings area most people would probably never see in their lifetimes with other carriers.

  22. Einat says

    Hi Jim,

    I agree with everything you said, except one thing- I am not sure the tax calculation of the cap gains is correct? If she has capital gains on her $94K profits, my understanding is that she’ll pay $0 up to $40K, if single, and 15% on the rest of the profits. 15% of approx. $54K is $8100. I’m curious to know if this is correct, or not.

    • Shanna says

      I believe Einat is correct. She will pay zero capital gains on the first 40k of income, and since she is disabled and can no longer work I surmise that the gain may fill that bracket, with the remaining gain spilling over into 15% territory.

    • dandarc says

      Long term capital gains are “last dollars” for this computation – while indeed up to $40K (actually $53K if we include the standard deduction in this computation which is a 0% rate on all income, ignoring tax credits and other possible complexities) could be at 0% on this long term capital gain, any other income would push more and more of the LTCG into the 15% bracket. Seems very unlikely to go into the 20% LTCG tax bracket for this person.

      So to me it seems this unexpected LTCG will be taxed at a rate somewhere between 0% and 15%, ignoring various credits that this item may reduce. Taxes are super specific to your individual situation and surprisingly complex even at lower incomes – only sure way to really know for sure the exact impact of any “what if” is to prepare a draft tax return with all of the information needed, which we obviously do not have here.

    • Keith Schroeder says

      Hi Einat.

      FTR, my name is Keith Schroeder, I run The Wealthy Accountant blog and have run my own tax practice since 1982 part-time and full-time since 1989. I am also an enrolled agent, a tax professional licensed to practice before the IRS.

      So let’s look at the tax rates for long-term capital gains and qualified dividends. For 2022 the 0% bracket is for LTCGs up to $41, 675 for singles and married filing separate returns; $83,350 for joint returns; and $55,800 for head of household.

      But as with everything in taxes, this is a lie! The best way to visualize this is to take all your includable income, subtract your standard deduction or itemizations and putting the LTCG on the top. Any of the LTCG under the 0% threshold is taxed at 0%. (Be aware there are potential tax consequences on your state tax return as well.)

      Let’s use an example in a vacuum. A single individual with $94,000 of LTCGs and no other reportable income would have a federal return as follows:

      $94,000 – $12,950 standard deduction = $81,050

      taxed as:

      $41,675 at 0% and
      $39,375 at 15% = $5,906

      Note: If the taxpayer is 65 on December 31, 2022 the standard deduction is a bit higher. If the taxpayer receives Social Security, a portion of the benefit will be clawed into federal income and will increase the tax. And if I think about it for a while I would find plenty of additional caveats. Best to use a tax strategy in a vacuum to see how it works before adding moving parts.

  23. Matt says

    Read your book and really enjoyed the simple strategy and your tone/sense of humor as well. I have a question, prior to reading the book, I allowed my advisor to place me in several funds he felt comfortable with – because of my lack of knowledge. I have several funds that are down 40-55% YTD falling harder than the total index has fallen. I have started depositing new money into VTSAX since reading the book. Would you wait for those fallen funds to somewhat return before transferring that balance to VTSAX ? Or cut bait and transfer ASAP? My gut says to wait…

    • jlcollinsnh says

      Thanks for the kind words, Matt.

      If you have decided VTSAX is the better choice, I’d make the move now.

      However, if the funds you have are down 40-55% that suggests these are very aggressive. There is a chance that they will rebound more strongly when the market turns and you’d have to live with that.

      Of course, there is no telling when that will happen or how much further they have to fall.

  24. Morgan says

    This unexpected income could also have a big impact on any ACA-health insurance subsidies one was expecting for the year.

    I was previously unaware of the possibility of getting hit with a large capital gain, when I didn’t even personally make a sale. This post was very educational to me.

    Even if Ms. Pink had been invested for years, this capital gains event would have still affected her. In fact, if she had been invested for decades in the same fund, then her balance would have been bigger and the capital gains hit would have been bigger. That still would have been a better scenario for her overall.

    It doesn’t seem like we as individual investors can do a lot to avoid these big capital gains hits, so I’m glad they aren’t common!

    Side note, I have used your guided meditation recording countless times, and I love it!

  25. Lynne says

    When my parents first married, my dad “gambled” in the stock market and lost – so that was it for investing. 😞
    I thank them for teaching me how to be frugal; but I thank you for teaching me how to invest! 😀
    Really, really thank you.

  26. Norm Thibodeau says

    Years ago someone very close to me asked what I was doing as far as my investments were concerned and I told him I was investing monthly into the market and was happy with the results. He said he had some money to invest and would like to try it and did.

    Then came the 2008 crash and they insisted on getting out at the worse time. This despite being forewarned by myself and their financial planner of the ups and downs of the market.

    Like JL says in his stock series, this isn’t for everyone. The more people I talk to about finances during this current bear market the more I realize how true this is. Unless I certain that the person I’m speaking has what it takes to withstand the deep valleys that come with investing in the market(if that’s even possible)my advice is to steer clear of it.

  27. Mark Herman says

    A few thoughts.

    1) I think we all ought to applaud Ms. Pink for managing to save a very respectable sum of money.
    2) Yes, the market will always go up, eventually. Not everyone will be there for the upturn though. My parents, for example. I recently took over their finances. Hard reality is, one or both of them may not make it through to see the DOW hit 36,000 again. So what to do with their money? I’m leaning towards putting a bit in I Bonds (truth be told, we could put all of their currently available investment funds into I Bonds and not exceed the limit). I get we might lose a quarter of interest if cashed out before year 5. I get that they will be fortunate to see year 5. But I also think that it is safe while being a decent hedge against inflation, which their bank CDs are not, and which the little bit of money they have with Edward Jones (for the moment) is, for all intents and purposes, not.

    • Greg says

      Given your parents’ health, I would be very hesitant to tie all of it up in investments they won’t be able to access if they suddenly need money. As you say, an investment horizon of longer than 5 years doesn’t really seem to make sense for their situation. Do you plan to keep at least 12-18 months of spending money in a savings account for them to access as needed?

  28. Janie says

    Vanguard stepped in it on this one? This one and most everything lately.
    After Bogle passed, Vanguard became just another one. Terrible customer service, brokerage system is laughable compared with Fidelity and others, no app, nothing.
    What a shadow of a company it once was. Stay away from Vanguard and even their funds. They are too big now. Fidelity, ishares and others are better options!

  29. Sad Simon says

    Funny, no one has a crystal ball, no one knows the future but all say the stock market WILL go up in the future.
    Maybe we’re the generation that our kids will also look and say: “They gambled everything in the stock market thinking it would keep always going up…”

    • Tony says

      “Gambled”. Lol. I guess we will just have to rely on information from all of time, and see how that goes.

    • Fred says

      JL Collins points out in The Simple Path to Wealth that the stock market could collapse — completely. But if it did, that would mean that the economic system of the United States (and perhaps the entire world) collapsed completely. And therefore, your money has nowhere to remain safe. Your best bet is to dig an underground bunker and start stocking canned goods.

      So it’s not that the market cannot totally collapse. It certainly could “go to zero” – but this will likely be a civilization ending event.

      Perhaps a bigger risk that isn’t so far fetched is either a second Great Depression or hyperinflation within the economy. Both of these *could* happen and it’s why asset allocation, once you have assets of any substance, is important. You shouldn’t be holding 100% US equities when you retire.

    • Lynne says

      Ask your library to buy it.
      I did that with A Simple Path to Wealth and they did – even though I’m in Canada! Easy enough to translate 😀.

  30. gofi says

    So much for taking my time to read this thoroughly – I only came to the end after having this post open for half a day. I took my time, sorry.

    Yo Mr. Collins, how about you send me a copy of your book instead? Every time I’ve bought a copy, a friend happens to take it away. Six times this has happened.

    Anyway, please don’t forget to sign.

  31. Dr. Remoulak says

    Got my (purchased) copy of Taking Stock yesterday and found myself tearing through almost half of the book last night and look forward to finishing the rest today. A great read that provides many provocative and uncomfortable (but necessary) questions about the bigger picture of life. I’ve found one of the key points – why was finally reaching financial security so much less satisfying than I was expecting – reassuring, but now the hard work begins. If you’re finding yourself in the same spot, pick up the book, and if you’re not, still worth reading in hopes that you’ll be better prepared when you do. Thanks JL and Doc G.!

  32. Cubert says

    Great read and wise advice. It seems quite reasonable to stay out of the market if your lifetime disposition is a skeptical one. At best, I’d have advised keeping no less than half in cash at the outset, the rest invested in a target fund.

    Doc G. – Congrats on being an author! Add another to the pantheon of personal finance writers making the big time. Bravo (and to you as well JL!)

  33. NY says

    Based on the information provided, it appears these financial advisors failed their client. They failed first in not educating her on markets as you suggest, and they failed her in the timing of the purchase of the fund given the upcoming distribution, not to mention the inefficiency of TDF’s in taxable accounts but that’s another issue entirely.

    The real issue here is that his sister knows in her heart that she will likely outlive her money, coming to this realization alone means she is ready to be taught. That in this educational process, she will dispel the notion that the stock market is “worse than gambling” and embrace the simple path to wealth.

    I do wonder though JL why you would not advise a portfolio of simply Total Stock and Total Bond . To me it would seem that the target date funds would merely be adding complexity and risk in the form of international stock and bond exposure.

  34. Jason says

    So from a capital gains perspective, it seems like holding ETFs instead of mutual funds in taxable accounts is preferable, right? So holding VTI in taxable accounts would results in a lower capital gains liability than VTSAX in taxable accounts (but wouldn’t matter in non-taxable IRAs)?

  35. Justin says

    My brother is really big into stocks and charting, trying to buy low and sell high. He said I should give it a go because I would be really good at it.

    I thought about this today and laughed a bit. Yes I would be really good at it, because Since picking up your book I learned just to buy and hold VTSAX with some bonds. I’m in my early 30s, and should have enough to retire when I’m older thanks to compound interest, using a rough 7% return rate for the next 30 years. I’ll still continue to invest of course.

    I’m down a bit right now , but have been auto investing monthly. I hope It pays off in the future 🙂

  36. Ed says

    A few comments. 1. Not sure why any professional adviser would recommend buying a portfolio with bonds in it when the FED was clearly telling the entire world they were going to drive the price of bonds down, by a lot. And the funds need to mark to market the price of bonds down daily causing real losses for shareholders of the the funds. 2. Your argument about going all in and because the market goes up 75% of the time vs dollar cost averaging in, so its a smarter bet to go all in at a single point in time. First, while it may go up 75%, the percent that it beats cash returns is less than that. Second and more importantly, this assumes that the payout by DCA vs going all in in is an even money bet. But clearly its not. The Nasdaq hit 5000 in March of 2000 and then crashed. It did not hit 5000 again until April 2015. That’s 15 years of lost returns, which when compounded is massive.

Leave a Reply

Your email address will not be published. Required fields are marked *