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[PflargBlarg]

Thanks!

Turns out a friend of mine is using Questrade already and likes it, so this gives me a bit more confidence in it.

I'm confused though. The E-series at TD are good and all, but once you're set up with Vanguard index ETFs is there a reason to keep the e-series stuff? Just for diversity sake? E-series fees are low, but Vanguard beats them by a fair bit still.

I'll let the e-series stuff i have stew for a while still at least, but I'm having trouble thinking of why I should do so long term or even put more into those after I finish getting set up with Vanguard stuff.

No, not particularly. The e-series is kind of considered like a starter portfolio before you really get into it. You sound like you're good with Questrade and starting up in ETFs so there's not much reason to stay at TD with that stuff.
Might as well cash it out and move it I say.

 

[UraMallas]

OK, real quick, the $5500 in your Roth 401K does not impact your ability to also do an IRA. You can contribute up to $18000 of your own funds to a 401K. The employer match is over and beyond that. You can also contribute up to $5500 to an IRA. You can do both of these at the same time, and we encourage folks to do just that if they can.

As for Roth versus traditional for your 401K, it's personal preference to a large extent, but the argument typically goes that if your top marginal rate is on the low side right now (ie., you're not making much money today), then it's beneficial to go ahead and lock in the low tax rate of today and go with a Roth investment strategy. The higher your income now, the higher your top marginal rate is now, the more likely you are to benefit from avoiding taxation now, which suggests following a traditional strategy with the hope of paying a lower average tax rate in the future. The key here is you're betting on future tax rates, which are uncertain, so there are those that would suggest still doing a Roth either way.

But really though, whichever way you go, if you can afford it, do more.

Man. This was incredibly helpful. Thanks for all of this.

 

[tokkun]

I'm confused though. The E-series at TD are good and all, but once you're set up with Vanguard index ETFs is there a reason to keep the e-series stuff? Just for diversity sake? E-series fees are low, but Vanguard beats them by a fair bit still.

I'll let the e-series stuff i have stew for a while still at least, but I'm having trouble thinking of why I should do so long term or even put more into those after I finish getting set up with Vanguard stuff.

Depends on whether it's a tax exempt account and whether the funds have appreciated in a significant way since you bought them. If the answer is 'yes' to both, you might not want to sell in order to avoid paying capital gains tax.

 

[SephCast]

I see a lot of times the advice is to invest in your company 401k up to the match, then open an IRA, etc...

What about 457 plans or maxing one of them out as opposed to going to the match + opening an IRA? I have a 457 plan through my employer and while I'm contributing to the match, I'm far from maxing it (max is $18k). I have some money sitting around and was considering opening a Roth through Vanguard but I don't know if that's a better move than simply upping my contributions at work.

Unfortunately, I'm not eligible to open an IRA due to our combined earnings. I need to start looking into other things. I have an appointment with a financial planner later this month (my good friend's dad, so I trust him).

 

[Randolph Freelander]

Unfortunately, I'm not eligible to open an IRA due to our combined earnings. I need to start looking into other things. I have an appointment with a financial planner later this month (my good friend's dad, so I trust him).

You can open an IRA regardless of your income. What you are likely to be ineligible for is the tax deduction for a traditional IRA contribution, and you may also be technically ineligible to contribute directly to a Roth based on your income. However, as with many things, there's a loophole. You can open and contribute to a traditional IRA and then convert that IRA to a Roth, and it's all perfectly legal (you just pay taxes on accrued gains, and for immediate conversions, there's little to no gains). For more on this, just search the world wide webs for backdoor Roth IRA.

 

[demosthenes]

Bonuses just came out in our office. $7,000. After 401k and taxes and all that stuff going to split that between my Vanguard and furniture for my new house.

FEELS GOOD.

 

[demosthenes]

Another feels good.

Was updating my different accounts into an excel I keep. 30 years old, ~2 months. My retirement accounts hit my goal that I wanted to hit for age 30. Feels really good. Going to be upping my 401k back to 10% once I finish all this house stuff too.

 

[Piecake]

So how much are you guys putting away for investment/saving purpose per month? Right now I have auto-transfer per month that goes into my Questrade investment account and invest in ETF. Hopefully within a few more years I can save up enough and buy a second place and rent one of my places out for some nice passive income. How is everybody else doing here?

My plan is pretty simple. I max out my Roth and contribute as much as I can to my 401k. I don't make a whole lot of money so I have never made it to the point where I hit the 401k max. Saving and starting young has definitely been the key for me since I am definitely ahead of the curve even though my salary is rather average.

I am personally not a huge fan of rental properties myself, so I can never see myself going that route. In theory, I like the idea, but that just seems like A LOT of hassle that I would just rather not deal with, and as a person who really isn't handy around the house I would have to call in specialists to fix every little problem. That seems like a very good way to dig deep into your returns and completely eliminating one of the huge benefits of index investing - turning the whole damn thing on autopilot and not stressing about it.

 

[demosthenes]

So how much are you guys putting away for investment/saving purpose per month? Right now I have auto-transfer per month that goes into my Questrade investment account and invest in ETF. Hopefully within a few more years I can save up enough and buy a second place and rent one of my places out for some nice passive income. How is everybody else doing here?

458/month goes from checking -> savings. On 1/1 It goes into my IRA.
564/month for EE and ER 401k (Will soon be 813 a month)
So right now, 1,022/month.

When my money gets up high enough I'll move some more into my Vanguard but jsut the above is 'mandatory'.

 

[Smiley90]

So how much are you guys putting away for investment/saving purpose per month? Right now I have auto-transfer per month that goes into my Questrade investment account and invest in ETF. Hopefully within a few more years I can save up enough and buy a second place and rent one of my places out for some nice passive income. How is everybody else doing here?

Right now I'm in the unfortunate situation that my income BARELY covers my expenses. So nothing to be put aside.

 

[Prax]

I don't make that much money personally, but I'm married and we try to keep our expenses low, so I can often squirrel away ~$350/month (that actually sounds like a lot compared to some others though..!).
Luckily I have my husband on my team and he's able to put away ~ $750/month.
So we're able to put about $1100/month away into retirement/tax free accounts.

If we can hold steady, I think we will be able to retire at age 55. (If we are greedy, we can go 5-10 more years and possibly gain another million but.. is it worth it?? lol)

I've recently started earning a bit more money now though, so I'm excited to be putting away even more money soon.. at least until I have kids. Then it's all downhill from there I suppose..! (The assumption is I will go back to part-time work when I'm able instead of full-time in order to do the bulk of the childcare.)

I think to be fair, neither of us are high-flying types when it comes to "careers". We both just work in grocery stores, and not as managers either, so I am proud of our humble financial stability so far. lol

 

[Wellington]

Doing some financial housekeeping this morning and logged into my retirement account - noticed that the "Change in Market Value" for the year has outpaced my contribution and employee match for the year. That's definitely a first and I am excited to continue watching the magic of compound interest. Feels good, man.

I don't make that much money personally, but I'm married and we try to keep our expenses low, so I can often squirrel away ~$350/month (that actually sounds like a lot compared to some others though..!).
Luckily I have my husband on my team and he's able to put away ~ $750/month.
So we're able to put about $1100/month away into retirement/tax free accounts.

If we can hold steady, I think we will be able to retire at age 55. (If we are greedy, we can go 5-10 more years and possibly gain another million but.. is it worth it?? lol)

I've recently started earning a bit more money now though, so I'm excited to be putting away even more money soon.. at least until I have kids. Then it's all downhill from there I suppose..! (The assumption is I will go back to part-time work when I'm able instead of full-time in order to do the bulk of the childcare.)

I think to be fair, neither of us are high-flying types when it comes to "careers". We both just work in grocery stores, and not as managers either, so I am proud of our humble financial stability so far. lol

Being able to retire or achieve financial independence is also a function of how much you spend, not just how much you make. Saving anything is better than saving nothing as you already know.

 

[tokkun]

Article in the NYT this week about a position I've long advocated: Keep your investments as simple as possible to reduce the behavioral risk of fiddling with your allocations.

http://www.nytimes.com/2016/08/06/your-money/401k-retirement-plan-investment-stock-markets.html

This is an extreme example but an important one, given that plenty of smart people capitulate when faced with the pain of looking too hard at fast-falling balances. Even when market moves aren’t quite as severe, people still tend to fiddle with their holdings. In the second quarter of this year, 13 percent of Fidelity 401(k) account holders did so.

One group is not counted in those numbers, though: the people who keep all their retirement money in target-date funds. These funds are designed not to be touched, since they maintain a prescribed mix of investments that shifts slowly over the years as you age and need to take fewer risks. In other words, they buy and sell only when they are supposed to, according to the investment mix that corresponds to your age. And sure enough, only 1 percent of the Fidelity account holders in those funds made any moves during the second quarter. If this sort of investing is attractive to you, automated investing firms like Betterment and Wealthfront work in similar ways.

Left to our own devices, picking and choosing among a variety of funds, we’re likely to change our minds often and flit in and out of things. According to Morningstar data examining 1,930 stock mutual funds over 15 years ending in June, the difference between what the funds would have delivered to steadfast investors and what the average investor (who did not hang around for that long) actually earned was 0.99 percentage points. That doesn’t seem like much, but a one percentage point difference in returns can mean missing out on many hundreds of thousands of dollars in returns over the decades.

1% loss for the average investor is quite a bit. Food for thought on why you might want to use Target Date, even if the expense ratio is slightly higher and it doesn't 100% match your ideal allocations for bonds or international.

 

[demosthenes]

I don't make that much money personally, but I'm married and we try to keep our expenses low, so I can often squirrel away ~$350/month (that actually sounds like a lot compared to some others though..!).
Luckily I have my husband on my team and he's able to put away ~ $750/month.
So we're able to put about $1100/month away into retirement/tax free accounts.

If we can hold steady, I think we will be able to retire at age 55. (If we are greedy, we can go 5-10 more years and possibly gain another million but.. is it worth it?? lol)

I've recently started earning a bit more money now though, so I'm excited to be putting away even more money soon.. at least until I have kids. Then it's all downhill from there I suppose..! (The assumption is I will go back to part-time work when I'm able instead of full-time in order to do the bulk of the childcare.)

I think to be fair, neither of us are high-flying types when it comes to "careers". We both just work in grocery stores, and not as managers either, so I am proud of our humble financial stability so far. lol

When I hit 55 I want to significantly reduce my work time. I want to soft retire and start working just like 20 hours a week or something to keep up a small income and keep my brain sharp in my field.

 

[NetMapel]

Right now I'm in the unfortunate situation that my income BARELY covers my expenses. So nothing to be put aside.

Smiley! So what's been up with you? What's new? You're doing the research job that you told me about before? It is hot as heck at my place now. Thinking I should invest in a portable AC now

My plan is pretty simple. I max out my Roth and contribute as much as I can to my 401k. I don't make a whole lot of money so I have never made it to the point where I hit the 401k max. Saving and starting young has definitely been the key for me since I am definitely ahead of the curve even though my salary is rather average.

I am personally not a huge fan of rental properties myself, so I can never see myself going that route. In theory, I like the idea, but that just seems like A LOT of hassle that I would just rather not deal with, and as a person who really isn't handy around the house I would have to call in specialists to fix every little problem. That seems like a very good way to dig deep into your returns and completely eliminating one of the huge benefits of index investing - turning the whole damn thing on autopilot and not stressing about it.

Yeah saving starting young is very important. I was able to save like $1500+ a month by living with a roommate. That allowed me to save a couple of years, pay off my student loans and then put money down for a home down payment. The key is really to control your expense as best as you can because I don't really splurge a lot on buying things. Having money auto-transferred away from my chequing account helps because then I won't think I got lots of money in my bank account, haha. Just have to take away spending incentive first, you know. I feel that having a place basically pays for itself though. Currently I have a friend who lives with me now and she pays me rent. That significantly cut down my monthly mortgage payment so I am saving those money. I know having a rental unit will cost money, but I wonder if it'd make sense to hire a management company to just manage the property for you, you know. Yes it cuts down on your overall revenue, but you don't really have to worry about the place otherwise. Keep the rental fee low and really try to look for long-term renter who will take care of your place.

 

[ZackieChan]

When I hit 55 I want to significantly reduce my work time. I want to soft retire and start working just like 20 hours a week or something to keep up a small income and keep my brain sharp in my field.

Same for me. If I can have $5-600k saved I can semi-retire somewhere cheap and work 10-20 hours a week. Gonna be great. Then my Social Security kicks in a few years later and I'll be able to fully retire. I'd like to move into a career as a mediator/arbitrator at some point in my 50s. They make good money and the work is relatively simple.

 

[Prax]

When I hit 55 I want to significantly reduce my work time. I want to soft retire and start working just like 20 hours a week or something to keep up a small income and keep my brain sharp in my field.

Well, I work in grocery stocking shelves, so I need not keep my sharpness in the field.. hahah! At least, it's not a priority for me. Plus our jobs give us respectable pensions (well, as respectable as you can expect from a grocery job. lol I've calculated that he'll receive ~ 17k/year and me maybe 10k/year if we retire early at 55.) I think that combined with our savings--hoping to reach a million by then so perhaps have a 40k annual withdrawal?--we'll have a comfortable time! -- And then Canadian Pension and Old Age Security eventually kicks in and we'll have even more income? Is that how it works? lol

My goal is to retire from the grind and devote more time to my art finally! Hopefully by then I will either feel good enough about my skill level OR not care anymore about my skill level and just be able to pump out stuff for my soul's desire instead of miring in perfectionism.

 

[NYCmetsfan]

So I have a bit of money I want to put into an IRA because I don't have a pension or 401k available at my new job for another year.

I like vanguard but don't know whether to do the Target Date or STAR fund.

And if I open one can I, when I have the full 3k turn the fund into a mutual fund? IDK if there's any difference between that and the 1k minimum Target Date and Star fund.

 

[Piecake]

My goal is to retire from the grind and devote more time to my art finally! Hopefully by then I will either feel good enough about my skill level OR not care anymore about my skill level and just be able to pump out stuff for my soul's desire instead of miring in perfectionism.

I used to have this problem (still sort of do, but nearly as bad).

What helped me is to realize that everything can be improved. And if everything can be improved the work you do now is not a reflection of your inherent ability as an artist, but simply where you are at on the road to continual improvement.

It makes very little sense, then, to be stress out or freak out over the judgement and criticisms of other people because they are simply commenting and criticizing on a transitory stage and not you as a person. Take their comments and criticisms, even if it mean, as a way to further your skill.

So I have a bit of money I want to put into an IRA because I don't have a pension or 401k available at my new job for another year.

I like vanguard but don't know whether to do the Target Date or STAR fund.

And if I open one can I, when I have the full 3k turn the fund into a mutual fund? IDK if there's any difference between that and the 1k minimum Target Date and Star fund.

I'd go with a Target Date fund personally simply because I am not a big fan of bonds and the STAR fund has a lot of bonds.

To turn it into a mutual fund, all you would have to do is sell the fund you currently own and buy the fund you want. Since it will be in an IRA there will be no tax implications so you can sell worry free. The money will simply go to your IRA money market account where you can then buy the fund you want.

 

[Smiley90]

Smiley! So what's been up with you? What's new? You're doing the research job that you told me about before? It is hot as heck at my place now. Thinking I should invest in a portable AC now



Yeah saving starting young is very important. I was able to save like $1500+ a month by living with a roommate. That allowed me to save a couple of years, pay off my student loans and then put money down for a home down payment. The key is really to control your expense as best as you can because I don't really splurge a lot on buying things. Having money auto-transferred away from my chequing account helps because then I won't think I got lots of money in my bank account, haha. Just have to take away spending incentive first, you know. I feel that having a place basically pays for itself though. Currently I have a friend who lives with me now and she pays me rent. That significantly cut down my monthly mortgage payment so I am saving those money. I know having a rental unit will cost money, but I wonder if it'd make sense to hire a management company to just manage the property for you, you know. Yes it cuts down on your overall revenue, but you don't really have to worry about the place otherwise. Keep the rental fee low and really try to look for long-term renter who will take care of your place.

Yep! At UBC. Got a 10% raise 4 months into my new job three weeks ago :lol

Bought a portable AC last summer, best "investment" ever.

 

[GaimeGuy]

Decided not to roll over my Lockheed Martin Voya account into my leidos account. Kind of wish I could keep contributing to the LM funds....

 

[Paches]

Question for the retirement finance pros out there:

Currently I have about $400-600 per month I am not spending. I make a $320 monthly contribution to my investment account (mutual funds) and have already maxed out my Roth IRA contribution for the year, and my emergency savings fund is fully in place (I like to keep $15k min. in it and that is where it sits). Also, 10% of my paycheck goes to a state pension plan FYI. I have no outstanding debt besides my mortgage.

So the question:

Where should I allocate this money I am not spending each month? My current plan is to save it year round and then make the max yearly contribution in to my Roth at the start of each year to build it. I realize this money I won't be able to touch again for a long time, but I am still making monthly contributions to my investment account. Should I divert more to my mutual funds account or go with the Roth plan? Or something else I am missing completely?

 

[tokkun]

Question for the retirement finance pros out there:

Currently I have about $400-600 per month I am not spending. I make a $320 monthly contribution to my investment account (mutual funds) and have already maxed out my Roth IRA contribution for the year, and my emergency savings fund is fully in place (I like to keep $15k min. in it and that is where it sits). Also, 10% of my paycheck goes to a state pension plan FYI. I have no outstanding debt besides my mortgage.

So the question:

Where should I allocate this money I am not spending each month? My current plan is to save it year round and then make the max yearly contribution in to my Roth at the start of each year to build it. I realize this money I won't be able to touch again for a long time, but I am still making monthly contributions to my investment account. Should I divert more to my mutual funds account or go with the Roth plan? Or something else I am missing completely?

1. Do you have access to any tax-advantaged retirement savings beside the IRA? e.g. a 401k or HSA?
2. What are your longterm financial goals?

 

[Paches]

1. Do you have access to any tax-advantaged retirement savings beside the IRA? e.g. a 401k or HSA?
2. What are your longterm financial goals?

1. No on the 401k, the only employer sponsored plan is the pension (government job), but we do have access to contribute to a HSA which I currently do not.

2. I am relatively young still (28) and haven't started a family and have limited expenses, so I figure now is a great time to get a lot of work done with my money. I want to make a comfortable retirement amount. I know that is kind of vague, but I am really not sure yet what my end goal in terms of a real number I am shooting for is with retirement, but I want it to be comfortable, it is a hard question for me to answer!

 

[ascii42]

1. No on the 401k, the only employer sponsored plan is the pension (government job), but we do have access to contribute to a HSA which I currently do not.

2. I am relatively young still (28) and haven't started a family and have limited expenses, so I figure now is a great time to get a lot of work done with my money. I want to make a comfortable retirement amount. I know that is kind of vague, but I am really not sure yet what my end goal in terms of a real number I am shooting for is with retirement, but I want it to be comfortable, it is a hard question for me to answer!

Well, the thing to look at is your pension. How likely do you feel you are to stay with the government until retirement? And if you do, how much of your retirement needs does it feel like your pension will cover. Obviously difficult to do at this point.

Since you don't really know how much you'll want, I suppose there's nothing wrong with putting all the extra money after Roth IRA contributions into mutual funds. Depending on your mortgage rate and your risk tolerance, you may also consider making extra payments on your mortgage. Doing so is like a guaranteed return on investment at your interest rate (depending on whether and how much of that interest you can deduct from your taxes).

 

[Paches]

Well, the thing to look at is your pension. How likely do you feel you are to stay with the government until retirement? And if you do, how much of your retirement needs does it feel like your pension will cover. Obviously difficult to do at this point.

Since you don't really know how much you'll want, I suppose there's nothing wrong with putting all the extra money after Roth IRA contributions into mutual funds. Depending on your mortgage rate and your risk tolerance, you may also consider making extra payments on your mortgage. Doing so is like a guaranteed return on investment at your interest rate (depending on whether and how much of that interest you can deduct from your taxes).

With the pension, I feel like I will be at my job for a long time. It is very secure (union protected in a liberal state) and I enjoy what I do a lot and have no real ambition to go in to the private sector. Using the states retirement calculator, based on my currently salary if I retired at the qualifying age, I would be receiving back about 4k/mo, and it is adjusted for inflation every year. I think between that, the Roth IRA, and mutual fund investment, I will be really solid. Which lead me to ponder what you mentioned in your second paragraph...

I recently bought my house about 6 months ago, put 20% down and have about 190k left on the mortgage with a 4.125% interest rate. I considered what you talked about in terms of paying down principal for "guaranteed" returns, but thought perhaps there was a better way to use my money.

Thanks guys for the advice so far, very helpful!

 

[Chris R]

I was going to say accelerate your payments to get rid of your PMI but you already have that covered.

 

[kutthoat5150]

Where do you guys recommend for a good place to put a rainy day fund? I'm starting to save up my 6 months worth of savings and want to avoid my savings account as the growth rate is abysmal per year. I'm looking at the following Vanguard mutual fund here and would like to know your thoughts it this looks decent of if there's something else you might recommend, thanks.

https://personal.vanguard.com/us/funds/snapshot?FundId=0724&FundIntExt=INT

 

[ZackieChan]

I thought you wanted that to be liquid and available for emergencies. I just have mine (3 months, which could be stretched to 6 if need be) in a savings account so I could easily transfer to my checking at the same bank.

 

[kutthoat5150]

I thought you wanted that to be liquid and available for emergencies. I just have mine (3 months, which could be stretched to 6 if need be) in a savings account so I could easily transfer to my checking at the same bank.

Sorry I'm pretty new to mutual funds but couldn't you just sell it off relatively quickly if needed and take a small penalty hit? My current savings account grows around 10% of inflation so I would have less money in the long run if needed.

 

[tokkun]

1. No on the 401k, the only employer sponsored plan is the pension (government job), but we do have access to contribute to a HSA which I currently do not.

2. I am relatively young still (28) and haven't started a family and have limited expenses, so I figure now is a great time to get a lot of work done with my money. I want to make a comfortable retirement amount. I know that is kind of vague, but I am really not sure yet what my end goal in terms of a real number I am shooting for is with retirement, but I want it to be comfortable, it is a hard question for me to answer!

Generic retirement-oriented advice then:

Max out the HSA contributions first. You will want to look at the fees and investment options with the HSA your employer offers. You are free to transfer money from your employer's HSA to an HSA at another bank at any time. Pick an HSA with good investment options (if your employer's plan has high fees HSAA and ELFCU are common recommendations for investment-oriented HSAs) and keep most/all of the money in index funds. You should continue to prefer to pay for medical expenses out of your cash reserve if you can afford to, since the HSA will grow much faster.

After that, if your mortgage rate is above 5% I would pay down the mortage faster. Otherwise just contribute more to your after-tax investment account.

 

[tokkun]

Sorry I'm pretty new to mutual funds but couldn't you just sell it off relatively quickly if needed and take a small penalty hit? My current savings account grows around 10% of inflation so I would have less money in the long run if needed.

There is a correlated risk associated with this approach: namely that if the economy tanks you might lose your job and have your rainy day fund lose a lot of value at the same time.

HOWEVER --- Outside of 1929 and 2008, the worse bear markets lost ~30%. When you consider that inflation-adjusted returns on stocks are ~8%, you only need a few years of normal growth before you can absorb a market crash and still be better off than if you kept the money in cash.

So if you're otherwise doing alright, it may be a calculated risk worth taking, but it comes down to your comfort level.

 

[ZackieChan]

Maybe do 3 months in normal savings, 3 months in mutual fund?

 

[kutthoat5150]

There is a correlated risk associated with this approach: namely that if the economy tanks you might lose your job and have your rainy day fund lose a lot of value at the same time.

HOWEVER --- Outside of 1929 and 2008, the worse bear markets lost ~30%. When you consider that inflation-adjusted returns on stocks are ~8%, you only need a few years of normal growth before you can absorb a market crash and still be better off than if you kept the money in cash.

So if you're otherwise doing alright, it may be a calculated risk worth taking, but it comes down to your comfort level.

thanks for the input, I'd consider myself to have relatively high job security for at least the next few years so I think this is the approach I'm going to take

Maybe do 3 months in normal savings, 3 months in mutual fund?

I may consider this but not with my current bank. Ally seems to have a decent annual growth rate compared to others so I may look into this as well

 

[Mrbob]

Sorry I'm pretty new to mutual funds but couldn't you just sell it off relatively quickly if needed and take a small penalty hit? My current savings account grows around 10% of inflation so I would have less money in the long run if needed.

Well remember the money invested at Vanguard you don't have access to it right away. Typically takes a couple days to get the money. I know it isn't sexy to keep money in a savings account but at least the money is there when you need it.

Why not keep 6 months in your savings and then double that by slowly building up your rainy day fund. You could always dollar cost average your way to the total you want in your vanguard account. This way you are building up more overall money saved and you have the near instant liquidity in your savings account.

I've been building a "rainy day" fund at betterment with the same percentage as the conservative growth fund(40% stock, 60% bonds) with weekly investments (basically break up my monthly investment into equal weekly investments). This way I have more spins at the wheel so to speak in a grinding market. If the market goes up or down I keep investing. Plus I have my access to liquidity in savings if I need to pull that money quickly.

 

[DreadfulOmen]

How old is too old to start investing? 35? 40?

 

[ZackieChan]

How old is too old to start investing? 35? 40?

Never too old. Start today.

 

[milanbaros]

How old is too old to start investing? 35? 40?

It is never too old but every year you delay makes achieving your long term goal much tougher.

 

[giga]

How old is too old to start investing? 35? 40?

Yesterday.

 

[KillGore]

Will check this thread out later. Thanks OP

 

[tokkun]

Well remember the money invested at Vanguard you don't have access to it right away. Typically takes a couple days to get the money. I know it isn't sexy to keep money in a savings account but at least the money is there when you need it.

My argument on this topic has always been that pretty much every large, unexpected personal expense that might arise can either:

A. Be paid with a credit card or
B. Can wait the 3 days or so it takes to make a stock sale and wire transfer or
C. As a last resort, can be covered with a credit card cash advance or a payday loan. These will cost you, but I think this scenario will almost never happen, since just about everything will fall under A or B.

The only thing I can think of are movie-style scenarios like 'your daughter has been kidnapped and held for ransom' or 'the mob is going to break your legs if you don't pay your gambling debts.' In the normal world, I don't think situations where you get a sudden expense for > $1000 and are expected to pay it the same day really occur, because half of Americans say they could not cover an unexpected $400 expense. It is just not a practical expectation for creditors to have.

If there are some real-world scenarios I am not thinking of, I'd love to hear them.

I understand that there is a warm and fuzzy feeling that people get from having high liquidity, and if that's what you want, that's fine, but realize that the effects of cash drag are real. Good savings accounts pay about 1% (pre-inflation) these days. Vanguard founder Jack Bogle is predicting 6% annualized growth for US stocks over the next decade. If that is true, it would put cash drag at roughly 5%, or in other words, every $10K of liquidity is costing you $500 / yr. Not exactly small potatoes, and that is assuming below historical average stock returns.

Another way to think about it is that the cash drag on $10K is the same as the total expense on $1M invested in Vanguard TSM Admiral shares / ETF. So anyone who has found religion on using passive funds to minimize investment fees might want to take a look at how much money you are keeping in cash - there's a good chance it is costing you more than all of your investments.

 

[DreadfulOmen]

Thanks everyone. I'll go back and read the first few pages to make sure I understand the info better.

 

[ZackieChan]

My argument on this topic has always been that pretty much every large, unexpected personal expense that might arise can either:

A. Be paid with a credit card or
B. Can wait the 3 days or so it takes to make a stock sale and wire transfer or
C. As a last resort, can be covered with a credit card cash advance or a payday loan. These will cost you, but I think this scenario will almost never happen, since just about everything will fall under A or B.

The only thing I can think of are movie-style scenarios like 'your daughter has been kidnapped and held for ransom' or 'the mob is going to break your legs if you don't pay your gambling debts.' In the normal world, I don't think situations where you get a sudden expense for > $1000 and are expected to pay it the same day really occur, because half of Americans say they could not cover an unexpected $400 expense. It is just not a practical expectation for creditors to have.

If there are some real-world scenarios I am not thinking of, I'd love to hear them.

I understand that there is a warm and fuzzy feeling that people get from having high liquidity, and if that's what you want, that's fine, but realize that the effects of cash drag are real. Good savings accounts pay about 1% (pre-inflation) these days. Vanguard founder Jack Bogle is predicting 6% annualized growth for US stocks over the next decade. If that is true, it would put cash drag at roughly 5%, or in other words, every $10K of liquidity is costing you $500 / yr. Not exactly small potatoes, and that is assuming below historical average stock returns.

Another way to think about it is that the cash drag on $10K is the same as the total expense on $1M invested in Vanguard TSM Admiral shares / ETF. So anyone who has found religion on using passive funds to minimize investment fees might want to take a look at how much money you are keeping in cash - there's a good chance it is costing you more than all of your investments.

So where to you recommend I keep my emergency fund?

 

[tokkun]

So where to you recommend I keep my emergency fund?

Keep a small amount in a checking account - enough to handle incidental unexpected expenses and natural variations in your month-to-month spending. This is mainly for convenience factor; personally I don't want to worry about the timing of bills and paycheck deposits, so it's just easier to keep enough in checking. It depends on your spending patterns, but you can probably get by with something like 1-3 months expenses there.

What you do with the rest depends on your risk tolerance.

For the average person, a good compromise on risk and return for an emergency fund is something like Vanguard Intermediate-Term Corporate Bond Index.
https://personal.vanguard.com/us/funds/snapshot?FundId=3146&FundIntExt=INT

You don't hear people talk much about bonds in this thread, but Intermediate-Term Corporate have a 5-year average growth of 5% (which is way better than cash), despite abysmal interest rates, and they are pretty low risk.

If you want to maximize the expected value and can handle higher risk, put it in a low cost stock index fund. Something like Vanguard's Total Stock Market index is good.
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0970

 

[chaosblade]

So where to you recommend I keep my emergency fund?

Basically, a high interest savings account from a bank or credit union if you want/need liquidity. If you don't need liquidity you can invest.

Personally I use the Vanguard balanced index (60% US stock, 40% US bonds) as my "savings account" which I make every attempt to avoid drawing from, but there are plenty of other options with more or less risk.

 

[Mr.Mike]

Emergency fund in stocks seems a bit risky. I can appreciate that you don't want to lose out on returns, but I'd imagine there's a pretty good chance of the stock market dropping a bunch coinciding with someone needing to use their emergency fund because they've been laid off (perhaps because of the aforementioned economic crash).

That said, keeping your emergency fund in bonds is probably a good idea. Perhaps a compromise might be to keep your emergency fund in a target date fund for people who are already retired?

Cash isn't really quite the "guarantee" of value people assume it to be, either. I've personally experienced the CAD dropping a bunch and what I could potentially buy with my savings crashing along with it.

 

[ZackieChan]

Good ideas. I'll see what Schwab has to offer. I'm a month or so ahead on bills in my checking accounts, thanks to YNAB, so I'm good in that respect. Also, I have enough credit card room (just paid everything off this month, so I'm credit card debt free!) to handle immediate emergencies. Might as well but the 3 months or so of emergency fund in the investment account.

 

[UraMallas]

How do you guys feel about the rumblings the markets are about to take a dive before the elections? Any insight? I know that you stay the course with your retirement, I would just like to hear some of you guys' thoughts on it.

 

[tokkun]

How do you guys feel about the rumblings the markets are about to take a dive before the elections? Any insight? I know that you stay the course with your retirement, I would just like to hear some of you guys' thoughts on it.

You always need to start with the efficient market model as a baseline. From that, you have to answer one of:
A. What special knowledge do I possess that the market doesn't?
B. What special opportunity can I take advantage of that the broader market can't?

I think that if you are talking about the value of the entire market based on an extremely high profile event, the answer is probably "None" to both, unless you are Hillary Clinton's doctor or something.

 

[Randolph Freelander]

How do you guys feel about the rumblings the markets are about to take a dive before the elections? Any insight? I know that you stay the course with your retirement, I would just like to hear some of you guys' thoughts on it.

I think you're going to retire in 20-40 years and you shouldn't spend any time thinking about what happens in the markets between now and November.