Would ETFs Be a Better Option? 2-3k from retirement fund

Yanezez

Newbie
7 0
Hello all,

This is my first post so first, thank you in advance to the community. A little bit of context. I live in Chile where we have a private-pension fund known as AFP. Recent laws would allow me to withdraw about 2-3k USD from my savings for my use (if I wish to exercise it).

Hypothetical question. If you have 2-3k USD on a fund with gives you a stable long-term 4-6% interest rate. Would you take it out and put it in ETFs? (Lets say its for your pension 40 years down the line)

Cheers and thank you in advance!
 

1nvest

Well-known member
272 97
Hello all,

This is my first post so first, thank you in advance to the community. A little bit of context. I live in Chile where we have a private-pension fund known as AFP. Recent laws would allow me to withdraw about 2-3k USD from my savings for my use (if I wish to exercise it).

Hypothetical question. If you have 2-3k USD on a fund with gives you a stable long-term 4-6% interest rate. Would you take it out and put it in ETFs? (Lets say its for your pension 40 years down the line)

Cheers and thank you in advance!
hell yes! and then a small portion on equity. let us all know where you can get a stable 4-6% interest
 

Yanezez

Newbie
7 0
Thank you for the information. I am learning so pardon my complete noobness. 4-6% return is considered 'good'?

That is currently the earning of the private-pension administrators in Chile. However, I can take some of it now and was wondering if there is something out there with more reliability (maybe ETFs)
 

1nvest

Well-known member
272 97
Thank you for the information. I am learning so pardon my complete noobness. 4-6% return is considered 'good'?

That is currently the earning of the private-pension administrators in Chile. However, I can take some of it now and was wondering if there is something out there with more reliability (maybe ETFs)
I may have misunderstood the question, i thought you knew of an ETF that can do this
Your answer however suggests you dont know of one, but are comparing the results of pension administrators. so 4-6% for a pension administrator, who has the ability of investing in a mixture of emerging markets, US, commodities etc then no, 4-6% is not good at all. however, this all depends on your appetite for risk
i would have thought you could do alot better than a pension for higher gains, with comparable risk to a pension who will not manage your diversification and happily let it drawdown.
 

MasterOfCoin

Experienced member
1,149 441
Hmmm.

4-6% returns seems rather mediocre to me.

I rarely consider returns of less than 8% on 2-3K.

And certainly above 10% for anything larger.

But hey, that means actively managing your own investments, which is way beyond most folks skillset (or risk appetite) .

😁
 

Yanezez

Newbie
7 0
Thank you :)

What would be the best course of action? Would putting that money and letting it sit in an ETF (maybe SP500 one) be a good idea?

This is an amount that I'd rather not actively move, just let it sit. It currently is just sitting there in my pension fund, so any other alternative with higher interest would be good for me.
 

BigDeal

Member
91 38
Can you not hold the ETF within your pension ? In the UK retaining your investments within the pension is usually more tax efficient
 
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Yanezez

Newbie
7 0
Can you not hold the ETF within your pension ? In the UK retaining your investments within the pension is usually more tax efficient
That is a good point but unfortunately no. Due to a special law (after citizen demand) the government is allowing everyone to withdraw 10% of their savings, which is what I plan to do. Maybe through a Chilean Bank I can do it.

If not, do you think an option like Ameritrade, Fidelity (or any other platform) be a good for this?
 

Pip Pip Hoorah!

Newbie
4 2
Hello all,

This is my first post so first, thank you in advance to the community. A little bit of context. I live in Chile where we have a private-pension fund known as AFP. Recent laws would allow me to withdraw about 2-3k USD from my savings for my use (if I wish to exercise it).

Hypothetical question. If you have 2-3k USD on a fund with gives you a stable long-term 4-6% interest rate. Would you take it out and put it in ETFs? (Lets say its for your pension 40 years down the line)

Cheers and thank you in advance!
You're fortunate to have 40 years until retirement! I wish I had been this proactive when I was your age, some 25 years ago...

If you look at the S&P500 over the last 40 years, it has averaged around 9% return, or over 11% with dividends reinvested.
Ok, so past performance is no guarantee of future results, etc, etc, but you'll certainly be doing a lot better than leaving it in your government scheme.

A couple of things to consider:
First, your government scheme will be relatively low risk - you won't see the large movements from market volatility that you'll see with the S&P.

Second, this volatility is what gives you the better return, so you need to become comfortable with the fact that you might need to time your exit when it comes time to retire. If you were planning to retire in March 2020 for example, you would have to leave your fund alone until the fund recovered from it's Covid related low.
This means that you would give yourself access to your funds not on a defined date, but within, say, a five year window. Have a look at the S&P for the last 40 years, you will see that even during any of the last 3 market crashes, it doesn't take more than 2 or 3 years to recover. By accepting this, you will have an excellent return and ensure that you pull your money out of the fund at a time where it has achieved the greatest possible return.

Here in New Zealand we have the choice to put in somewhere between 3% and 10% of our earnings into our government fund. As I'm only 15 years away from retirement, I should be putting in as much as possible. Instead of putting in the maximum 10%, I'm putting 5% in the government fund (which is averaging around 6% annual return), with the other 5% going into my S&P fund. Then, I augment the S&P fund with any bonuses, spare cash and other income that isn't needed for other purposes.
On my 65th birthday I'll get access to my government fund, and my S&P fund I'll get access to somewhere between my 64th and 69th birthday, or something like that, depending on the market at the time.

Once I retire, I'll be transferring the S&P fund into something less volatile - not sure what this will be. I also have a property portfolio which might be the recipient of the funds, or some other slightly more stable asset class that will protect me from the downside in my retirement.
Hope this helps.
 
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Yanezez

Newbie
7 0
@Pip Pip Hoorah! Thank you so much for the response and especially for taking the time to answer. One thing I should clarify i that it technically is not a government scheme, here in Chile we are forced to pay 10% (soon to increase to 13%) of our monthly salary towards our own individualized fund which is managed by a private enterprise which generates a consistent 5-6% . Due to the crisis, the government is allowing all citizens to withdraw 10% of their savings for free use.

I liked what you mentioned about ETF (SP 500) it is exactly what I had in mind since I, being so far away from retirement, can afford 2-3 recessions.

May I ask which ETF did you invest in and in what platform? I am currently opening an account in Ameritrade but can also (I think) buy ETFs from my local chilean bank.
 

Pip Pip Hoorah!

Newbie
4 2
@Pip Pip Hoorah! Thank you so much for the response and especially for taking the time to answer. One thing I should clarify i that it technically is not a government scheme, here in Chile we are forced to pay 10% (soon to increase to 13%) of our monthly salary towards our own individualized fund which is managed by a private enterprise which generates a consistent 5-6% . Due to the crisis, the government is allowing all citizens to withdraw 10% of their savings for free use.

I liked what you mentioned about ETF (SP 500) it is exactly what I had in mind since I, being so far away from retirement, can afford 2-3 recessions.

May I ask which ETF did you invest in and in what platform? I am currently opening an account in Ameritrade but can also (I think) buy ETFs from my local chilean bank.
Ouch, that's a high amount to force you to pay in!
You may have to settle for putting less of your free cash into your fund, depending on your financial situation.
I'm with Vanguard (VOO fund) it has very low fees of just 0.03%. Because we can't access Vanguard funds directly here in New Zealand, I've had to access it through a local low fee broker. I get charged a $3 fee every time I deposit into it, which is a little less than ideal, so I tend to make deposits of $1,000 or more, rather than setting up a smaller weekly payment..

I know a little about the situation in Chile - enough to make me a little nervous on your behalf. Spreading your risk by getting an account with an offshore broker such as TDA, or even direct with Vanguard (not sure if you can in Chile) would be a good way to mitigate your risk.
 
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Yanezez

Newbie
7 0
->http://www.lazyportfolioetf.com/allocation/ray-dalio-all-weather/
All Weather can give you 7-8% annualized with Max DD 12%.
It is a bit lower than pure S&P but risk is much lower.
Not bad considering that 99%+ of "traders" waste their money and time trying to time the market.
This is good information. 7-8% is 1-2% percentage points higher than I am currently earning in 30-40 years it has the potential to be a significant difference.

Technical and noobie question. When you mention the Dalio Portfolio, how would I go on about actually buying this. Does this mean I have to individually buy each portion of the portfolio or is it already packaged?

For example, can I just go to Ameritrade and look for Dalio Portfolio and end of story? (sorry for the dumb question)
 

Yanezez

Newbie
7 0
Ouch, that's a high amount to force you to pay in!
You may have to settle for putting less of your free cash into your fund, depending on your financial situation.
I'm with Vanguard (VOO fund) it has very low fees of just 0.03%. Because we can't access Vanguard funds directly here in New Zealand, I've had to access it through a local low fee broker. I get charged a $3 fee every time I deposit into it, which is a little less than ideal, so I tend to make deposits of $1,000 or more, rather than setting up a smaller weekly payment..

I know a little about the situation in Chile - enough to make me a little nervous on your behalf. Spreading your risk by getting an account with an offshore broker such as TDA, or even direct with Vanguard (not sure if you can in Chile) would be a good way to mitigate your risk.
I looked into Vanguard, my family in the US uses Ameritrade so I thought it might be easier for me to learn. It's relatively cheap although in order to funnel funds into it, I have to set up a virtual bank like Transferwise or else the conversion fee kills me.
 
 
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