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[CopperPuppy]

Need some quick help, GAF. I use Vanguard, and am trying to make my 2016 contributions. Since it's after the first of the year, it showed a recently made contribution as counting toward my 2017 contribution even thought I hadn't hit my 2016 yearly maximum. How do I make it so that contributions made after the first of the year count toward my 2016 contribution?

EDIT: Nevermind. I've got it.

 

[hockeypuck]

Have somewhat of a hypothetical but based on somewhat of a real world situation I'm in.

The standard advice seems to be to do 401k until matched, then IRA, etc. Then contribute back to 401k until you cap it. The last bit is obviously only if you can afford to cap it. Which I can't.. not really.

But lets say your companies 401k is really awesome and provides a lot of Vanguard funds, and other well regarded funds. Since I can't afford to cap the 401k and contribute to an IRA. Would it be okay to skip the IRA and put all the money into the 401k assuming I would get the same fund picks as the IRA?

Don't forget to look at fees. My 403b through Fidelity has a few Vanguard funds but the fees are a little higher cuz Fidelity's gotta skim off the top, too.

 

[PflargBlarg]

Should I throw it all into index funds under vanguard? Is there a benefit to using something like betterment instead? My apologies if this has all been covered and I fully intend on doing my own research and googling and reading through this thread. I just really appreciate some thoughts and I'm pretty peeved I squandered this past year so even this post makes me feel like I'm at least trying to move in the right direction.

Can't really speak to the other stuff so I don't know American stuff very well. The only benefit to places like Betterment is the automation of stuff that maybe you don't want to bother with doing yourself.

That's stuff like automatic rebalancing, smarter dividend reinvestment than straight DRIP/DPP, and tax loss harvesting for taxable accounts. Nothing else on their benefits page really stood out to me. I suspect that many of their fringe benefits like fractional share trading are canceled out by their management fees.

Worth checking out probably and decide if it's worth it for you.

 

[r4z4]

Hi investment GAF, looking for some advice on what to do next. My current situation:

- Live in the UK
- Started working 10 years ago and was saving 11% (half my age) of my salary in company pension for 6 years
- Have a Share ISA that I have been depositing £150/month into since I started working
- 4 years ago went self employed, my old company pension still exists but I don't make deposits into it anymore
- Now have >£100k sitting in my savings account

I was thinking of doing the following:

- Setting up a SIPP and investing 7.5% of my annual income
- Increasing the amount I pay into my Share ISA to 7.5% of my annual income
- Together the above gets me back to 15% (half my age) of my annual income invested
- What else should I do? I'm not a fan of investing in property because of the associated admin/headaches, should I get over this?

How does that sound? What else should I be looking at? Thanks.

 

[Y2Kev]

And converted just now.

I am not sure how I feel about retirement savings vs PMI. It can make a large home nearly unaffordable in the short run.

 

[demosthenes]

And converted just now.

I am not sure how I feel about retirement savings vs PMI. It can make a large home nearly unaffordable in the short run.

I refused the notion of pmi.

 

[tokkun]

And converted just now.

I am not sure how I feel about retirement savings vs PMI. It can make a large home nearly unaffordable in the short run.

From an investment standpoint, that is probably a good thing. People have this emotional attachment to owning a big house, but most of the time they would be better off renting or buying something smaller and putting the money into more diversified investments with higher expected returns.

 

[Randolph Freelander]

For me, a single year of employer matches far exceeded the calculated sum of my total PMI payments. 3 to 1.

Going beyond that, ignoring tax consequences good or bad, 30 years of market returns on the 401K limit (excluding the employer match) of $18K at 8% produces returns of $163K. The same $18K in a 30-year mortgage loan at 4.25% costs almost $14K in interest.

No, market returns aren't guaranteed and mortgage interest is, but the math on returns versus interest isn't close, and employer match versus PMI is also tilted in my favor. All other things held equal, forget the huge down payment. Invest.

 

[Y2Kev]

From an investment standpoint, that is probably a good thing. People have this emotional attachment to owning a big house, but most of the time they would be better off renting or buying something smaller and putting the money into more diversified investments with higher expected returns.

So I've gotten different advice from someone on this. His argument was lever up as much as you can tolerate and then don't move at all. Basically get the house you think you need. You won't be able to get that kind of leverage (and enhanced equity returns) on anything like that in your life, and once your salary appreciates ~20% or so, a house at 5x your salary becomes manageable. Not needing to move in the future further enhances returns.

I don't know what PMI costs but I'd have to run the math on that, Randolph. PMI on a large mortgage is probably going to be more than 6% of my salary.

edit: It's possible these are not mutually exclusive events (save every penny and still lever up). Though I think your ability to save would be impeded with large mortgage payments.

 

[Pixels]

Comfort yourself with the notion that market timing rarely works, and even if the market takes a dive it really won't matter much in 30-40 years.

The smart money is always investing ASAP

Yep, that's all you can really do I guess.

 

[tokkun]

So I've gotten different advice from someone on this. His argument was lever up as much as you can tolerate and then don't move at all. Basically get the house you think you need. You won't be able to get that kind of leverage (and enhanced equity returns) on anything like that in your life, and once your salary appreciates ~20% or so, a house at 5x your salary becomes manageable. Not needing to move in the future further enhances returns.

Leverage brings higher risk with it. Ask all those people who ended up $100K underwater on their mortgages in 2009.

As for these "enhanced returns"...real estate markets are local - so take this with a grain of salt - but the figure I've heard quoted as the average historical appreciation on houses is about 1% after inflation. That is typically less than a mortgage interest rate, so what good does leverage give you? Maybe you live in a market that is getting better returns. If so, you still have to eat that risk of a bubble, and with interest rates still near historic lows, that is not so far-fetched.

Also, I'm not sure about you, but I don't have great faith in my ability to predict today what my ideal place would be in 5, 10, or 20 years time. People switch jobs, neighborhoods evolve, and priorities change. There's no guarantee that buying the place you think you'll want now will mean that you'll never move. Although if you are heavily leveraged, if the house's value drops you may not be able to afford to.

 

[TMC]

I started my new job about a month ago and I discovered that I have to wait a year before I can begin investing in their 401k program which sucks. I am now deciding what to do with my 401k from my previous employer. It isn't much as I only contributed for about a year before leaving. My options being leave it where it is, transfer it to my Roth IRA, or open a Traditional IRA and transfer it to that. The funds available where my 401k is currently held aren't great. Transferring to my Roth IRA will mean I have to pay taxes on it. Opening a Traditional IRA seems like the best idea.

I could always roll the funds into my company's 401k plan when the time comes. Vanguard may also have better funds than my company's funds so it may be best to let it sit with Vanguard. I just don't know what would be best to invest in as I am only transferring just under $1,000. VGTSX and VTSMX require $3,000 and I would rather continue contributing to my Roth IRA than investing in the Traditional IRA. Maybe it's better to pay the tax hit and transfer it to my Roth IRA after? What do you guys think?

 

[Maiden Voyage]

Wells Fargo sold their HSA service to Optum. WF would allow anything over $1k to be invested but Optum requires $1.5k. The switch happened Jan 1 and it bums me out that I'm losing $500 on my investment. Not the end of the world though-my employer is the one funding it. Optum also has the same investment choices as WF, which is also unfortunate.

 

[Darren870]

I'm going to be starting my own business this year. I have 5.5k right now to put into my Roth IRA. There shouldn't be any problems with this right? While I don't expect to make much money I know I'll probably make at least 30k+

Thoughts?

 

[mattiewheels]

Index funds sound like a good place to start if I'm going to invest >100k, but I've heard about people investing money in places like Lending Club. Does anyone have experience with that? Return of ~8% after defaults I hear.

 

[anonymous_abc]

Index funds sound like a good place to start if I'm going to invest >100k, but I've heard about people investing money in places like Lending Club. Does anyone have experience with that? Return of ~8% after defaults I hear.

Index funds are a good place to start if you have 50$. Seriously.

 

[tokkun]

Index funds sound like a good place to start if I'm going to invest >100k, but I've heard about people investing money in places like Lending Club. Does anyone have experience with that? Return of ~8% after defaults I hear.

Did you read about the series of scandals that caused them to fire their CEO earlier this year? First they were found to be misrepresenting the risk of loans to investors, then it was discovered that the CEO was not disclosing a big personal financial conflict of interest with a company they were dealing with.

It speaks to the lack of regulation and oversight in the P2P lending market.

 

[tokkun]

I'm going to be starting my own business this year. I have 5.5k right now to put into my Roth IRA. There shouldn't be any problems with this right? While I don't expect to make much money I know I'll probably make at least 30k+

Thoughts?

Even if your business takes off and you exceed the income limit for the Roth, you still have the option to go back and recharacterize the contribution to make it a non-Roth after-tax contribution. The only consequence is a longer tax return.

 

[Maiden Voyage]

Index funds sound like a good place to start if I'm going to invest >100k, but I've heard about people investing money in places like Lending Club. Does anyone have experience with that? Return of ~8% after defaults I hear.

My employer puts $1k into an HSA every year for me. I can invest anything over $1k. I've made over $200 from investing $2k in the S&P 500 fund. Would you turn down $200? I am planning to utilize the HSA as one, albeit smaller, retirement account since you can use the money for non-medical expense with no penalty after retirement.

 

[ClosingADoor]

Index funds sound like a good place to start if I'm going to invest >100k, but I've heard about people investing money in places like Lending Club. Does anyone have experience with that? Return of ~8% after defaults I hear.

Well, I personally wouldn't do it:

on May 6, 2016, Laplanche was forced to resign amid alleged ethical breaches on his watch that involved misdated loans and conflicts of interest. Lending Club is facing shareholder lawsuits and investigations by the Department of Justice and the SEC. (The company says it’s cooperating with investigators.) Lending Club has lost 80 percent of its market value since its high point, shortly after its initial public offering in late 2014,

If you make regular contributions to let's say an S&P500 fund, you might actually reach that 8% that way, depending on the period. If you want high dividend stocks, you can find those between reputable companies pretty easily, or just find a high dividend index fund that will do it for you.

 

[Darren870]

Even if your business takes off and you exceed the income limit for the Roth, you still have the option to go back and recharacterize the contribution to make it a non-Roth after-tax contribution. The only consequence is a longer tax return.

Cool, I'll invest asap then.

 

[Wellington]

My employer puts $1k into an HSA every year for me. I can invest anything over $1k. I've made over $200 from investing $2k in the S&P 500 fund. Would you turn down $200? I am planning to utilize the HSA as one, albeit smaller, retirement account since you can use the money for non-medical expense with no penalty after retirement.

HSA - The Ultimate Retirement Account - written by Mad Fientist. Good article if you wanted to read up more on that subject.

 

[PflargBlarg]

Since Personal Capital is pretty useless for Canadians I wanted something that could give me the same depth of information but hadn't found anything until I came across http://www.portfolioslicer.com/

It's not exactly ideal since you have to manually enter data and refresh the Power Pivot tables and so forth but it does give a ton of information. I suspect it shouldn't be too bad for most people here since if you're just in index funds there probably aren't that many back transactions to enter.

It took me about an evening to get it all configured and enter my transactions which seems like a reasonable amount of time.

 

[Sàmban]

So quick question: I have about 92K in student loans (75K at ~6.13% and 17K at ~6.2%) and I haven't really been doing any kind of investment because I am aggressively paying these off (2 year repayment term) with a rationale that ~6% return in two years is pretty awesome. I also have about 11K sitting in my savings account. What's the best way to use that 11K? Should I dump it all into the 17K loan? Is my approach pretty dumb, or should I start investing now and back off on the loans? (I'm 27 fyi, meaning I'll be 29 by the time I'm done paying these off)

 

[anonymous_abc]

So quick question: I have about 92K in student loans (75K at ~6.13% and 17K at ~6.2%) and I haven't really been doing any kind of investment because I am aggressively paying these off (2 year repayment term) with a rationale that ~6% return in two years is pretty awesome. I also have about 11K sitting in my savings account. What's the best way to use that 11K? Should I dump it all into the 17K loan? Is my approach pretty dumb, or should I start investing now and back off on the loans? (I'm 27 fyi, meaning I'll be 29 by the time I'm done paying these off)

6.x% is pretty steap, I would pay those off asap and after just shift gears straight away and pour just as much into a balanced index strategy as described in the OP.

 

[Randolph Freelander]

So quick question: I have about 92K in student loans (75K at ~6.13% and 17K at ~6.2%) and I haven't really been doing any kind of investment because I am aggressively paying these off (2 year repayment term) with a rationale that ~6% return in two years is pretty awesome. I also have about 11K sitting in my savings account. What's the best way to use that 11K? Should I dump it all into the 17K loan? Is my approach pretty dumb, or should I start investing now and back off on the loans? (I'm 27 fyi, meaning I'll be 29 by the time I'm done paying these off)

If you can pay those off in 2 years, go for it. Those interest rates are high enough to want to see gone sooner rather than later. One thing is don't forego 401K investing if it's available to you and if there's an employer match. Those are instant returns of whatever the match is. Beyond that, I would say do what you're doing.

 

[johnny956]

Index funds sound like a good place to start if I'm going to invest >100k, but I've heard about people investing money in places like Lending Club. Does anyone have experience with that? Return of ~8% after defaults I hear.

I threw $250 into Lending Club more as an experiment back in 2012. I'm currently sitting at 8.56% Adjusted Net Annualized Return. Overall it looks like my $250 investment is sitting at $355 with $273 of that still in investments. I'm basically letting in cash out now when my notes mature/paid back.

I would say it's mixed. I was pretty careful when I picked my notes. I only picked notes that did consolidation of existing bills. I never did loans for small biz, new car, or home improvements. I had four $25 notes charged off. 3 were rated C while 1 was rated D. I did everything manually so my concern would be when getting into larger amounts and buying more notes in groups when it comes to risk

 

[Sàmban]

6.x% is pretty steap, I would pay those off asap and after just shift gears straight away and pour just as much into a balanced index strategy as described in the OP.

If you can pay those off in 2 years, go for it. Those interest rates are high enough to want to see gone sooner rather than later. One thing is don't forego 401K investing if it's available to you and if there's an employer match. Those are instant returns of whatever the match is. Beyond that, I would say do what you're doing.

Thanks for the reply. What about refinancing? I saw an ad for Everest (sp?) and I did a quick application and it looks like I might be able to refinance both loans into one at 3-4% fixed. My credit score is 750 so I think I stand a pretty good chance of falling in that range. Is that possible? And if so, are there any downsides to refinancing and paying them off even quicker? I thought about it and it just seems too good to be true as Everest will loose money if I did that.

 

[tokkun]

I threw $250 into Lending Club more as an experiment back in 2012. I'm currently sitting at 8.56% Adjusted Net Annualized Return. Overall it looks like my $250 investment is sitting at $355 with $273 of that still in investments. I'm basically letting in cash out now when my notes mature/paid back.

I would say it's mixed. I was pretty careful when I picked my notes. I only picked notes that did consolidation of existing bills. I never did loans for small biz, new car, or home improvements. I had four $25 notes charged off. 3 were rated C while 1 was rated D. I did everything manually so my concern would be when getting into larger amounts and buying more notes in groups when it comes to risk

For comparison, the 5-year annualized return on the S&P 500 is 14.6%, and it requires zero work to invest.

Of course the more interesting thing to see will be how the private loan market performs when not in a bull market for equities. Particularly if we could turn back the clock and see how they would have weathered the recession.

 

[johnny956]

For comparison, the 5-year annualized return on the S&P 500 is 14.6%, and it requires zero work to invest.

Of course the more interesting thing to see will be how the private loan market performs when not in a bull market for equities. Particularly if we could turn back the clock and see how they would have weathered the recession.

Exactly, my 401k is doing substantially better over the same period. I was expecting a drop at some point in the market and thought the experiment would be interesting. I just don't want to deal with it anymore so letting it mature now

 

[Maiden Voyage]

HSA - The Ultimate Retirement Account - written by Mad Fientist. Good article if you wanted to read up more on that subject.

I've read this before, it's such a great synopsis. I'm going the route of treating it like a traditional IRA account. Since I get $1k/year I haven't deposited anything into it. If I begin to face some medical issues, I will likely use the tax free benefits instead and max my contributions.

 

[SourBear]

The HSA provided by my work charges $1.75/mo if you use it to invest, rather then just letting the money sit there accruing like 0.2% interest.

Are there cheaper alternatives or is that a fairly low fee?

 

[Maiden Voyage]

My HSA charges $1.75/mo if you use it to invest, rather then just letting the money sit there accruing like 0.2% interest.

Are there cheaper alternatives or is that a fairly low fee?

Mine is about $4/mo but my work covers the cost so long as I stay employed with them.

 

[tokkun]

The HSA provided by my work charges $1.75/mo if you use it to invest, rather then just letting the money sit there accruing like 0.2% interest.

Are there cheaper alternatives or is that a fairly low fee?

Compared with using a non-sponsored plan, it is a competitive price.

https://www.bogleheads.org/wiki/Health_savings_account#HSA_custodians_and_options

 

[disillusion386]

I'm finally able to supplement my 403b contributions through work by opening an IRA, but I need a bit of guidance on choosing between traditional vs. Roth. I know the difference between the two, and I'm pretty sure Roth is the way to go for me. But what scenarios are there for people to choose traditional over Roth though?

Also, is Vanguard the best place to open up an account? What's a minimum amount I should invest to get it started? Can I do it incrementally throughout the year to reach the $5500 maximum?

Thanks in advance!

 

[otake]

I'm finally able to supplement my 403b contributions through work by opening an IRA, but I need a bit of guidance on choosing between traditional vs. Roth. I know the difference between the two, and I'm pretty sure Roth is the way to go for me. But what scenarios are there for people to choose traditional over Roth though?

Also, is Vanguard the best place to open up an account? What's a minimum amount I should invest to get it started? Can I do it incrementally throughout the year to reach the $5500 maximum?

Thanks in advance!

I prefer Fidelity. More options.

 

[Wellington]

Thanks for the reply. What about refinancing? I saw an ad for Everest (sp?) and I did a quick application and it looks like I might be able to refinance both loans into one at 3-4% fixed. My credit score is 750 so I think I stand a pretty good chance of falling in that range. Is that possible? And if so, are there any downsides to refinancing and paying them off even quicker? I thought about it and it just seems too good to be true as Everest will loose money if I did that.

A couple of things here:

1) Who cares whether Everest makes or loses money as long as it works for you.

2) Look into SoFI as well. They also let you refinance the loans through them, I would go with whoever gives me the best rate.

3) If you refinance them (or I guess consolidate) into one loan, are you going to be OK with paying that new single payment or would it make sense to just refinance that 1 big loan and focus on wiping out the $17k one?

4) What Randolph said, make sure to at least secure the 100% return from the employer match on a 401k

5) Regarding the $11k in your savings account, how secure is your job/industry? Is the 11k an adequate emergency fund or can you live with less if you were to be fired tomorrow?

 

[heyf00L]

I'm finally able to supplement my 403b contributions through work by opening an IRA, but I need a bit of guidance on choosing between traditional vs. Roth. I know the difference between the two, and I'm pretty sure Roth is the way to go for me. But what scenarios are there for people to choose traditional over Roth though?

Also, is Vanguard the best place to open up an account? What's a minimum amount I should invest to get it started? Can I do it incrementally throughout the year to reach the $5500 maximum?

Thanks in advance!

My understanding (just a regular guy here) is that Traditional vs Roth is not a question that can be answered. There's no way to predict what taxes will be like when you retire. And who knows what your income will be like then, either. I personally prefer Roth. It seems safer.

Invest whatever you can.

 

[disillusion386]

I prefer Fidelity. More options.

My understanding (just a regular guy here) is that Traditional vs Roth is not a question that can be answered. There's no way to predict what taxes will be like when you retire. And who knows what your income will be like then, either. I personally prefer Roth. It seems safer.

Invest whatever you can.

Okay thanks! I'll probably choose Roth and look into Fidelity and Vanguard before diving in.

 

[Soroc]

I opened a ROTH January 2016 and maxed the 5500 contribution. I'm confused on the paying taxes part of this though. Will I be paying taxes on this when I file my taxes? I'm confused due to this statement

Are Roth IRA Contributions Taxed?
Roth IRA contributions are not taxed at the time you contribute the funds to your Roth IRA. However, your contributions come from post-tax income. You pay taxes on your income today, but not in the future.

So because my contribution was post-tax income am I not paying anymore taxes? If I am, how can I determine how much tax I'll get hit with when filing?

 

[chaosblade]

I opened a ROTH January 2016 and maxed the 5500 contribution. I'm confused on the paying taxes part of this though. Will I be paying taxes on this when I file my taxes? I'm confused due to this statement



So because my contribution was post-tax income am I not paying anymore taxes? If I am, how can I determine how much tax I'll get hit with when filing?

Your taxes would be the same as if you hadn't put the money in the Roth at all. If anything, you might benefit and get a savers credit if you qualify now and didn't previously.

 

[Soroc]

Your taxes would be the same as if you hadn't put the money in the Roth at all. If anything, you might benefit and get a savers credit if you qualify now and didn't previously.

Awesome thank you for the response.

So just for my clarification there would be no purpose of doing a trad IRA with post tax income since its literally double taxed money right? I mean outside of directly contributing via employer?

 

[tokkun]

Awesome thank you for the response.

So just for my clarification there would be no purpose of doing a trad IRA with post tax income since its literally double taxed money right? I mean outside of directly contributing via employer?

It would not be double-taxed. If you contribute post-tax money to a Traditional IRA (or in other words if you don't take a tax deduction on a contribution), you don't have to pay tax on it when you withdraw it. You still pay taxes on any gains when you withdraw them, but they grow tax-free while they are in the account.

I know a few people in this thread make this type of contribution, because it is the first step in exploiting the tax loophole referred to as the 'Backdoor Roth IRA'.

 

[Soroc]

Thank you for the clarification. I have started to look into the backdoor loophole you speak of.

 

[hockeypuck]

My employer puts $1k into an HSA every year for me. I can invest anything over $1k. I've made over $200 from investing $2k in the S&P 500 fund. Would you turn down $200? I am planning to utilize the HSA as one, albeit smaller, retirement account since you can use the money for non-medical expense with no penalty after retirement.

That's exactly what I'm doing with my HSA. Treat it like a mini-IRA. (I wouldn't describe it as the "ultimate," given the annual contribution cap is less than an IRA's).

 

[Lv99 Slacker]

Sorry for this silly question, but as a basic ass 1099 worker, it seems like my only tax free retirement account option is a roth ira. I max that out, and then what? I was wondering...can I fund my mother's ira or will she run into some IRS issues?

 

[hockeypuck]

Sorry for this silly question, but as a basic ass 1099 worker, it seems like my only tax free retirement account option is a roth ira. I max that out, and then what? I was wondering...can I fund my mother's ira or will she run into some IRS issues?

Looks like you have a couple options.

You can gift your mother up to $14,000 a year and not have to report that to the IRS. She can then fund her IRA.

 

[Lv99 Slacker]

Looks like you have a couple options.

You can gift your mother up to $14,000 a year and not have to report that to the IRS. She can then fund her IRA.

Yo. Thanks a lot for this info.

 

[Aaron Strife]

Would it be a smart idea to wait until the next stock market recession to jump in on investing into an index fund?

Like I don't have the 3,000 needed up front to get in with Vanguard anyway. I've been paycheck to paycheck for basically my whole adult life - I'm 25 - plus I still have some credit card debt and student loan payments. My goal for this year is to eliminate the credit card debt (owe 4k on one because I maxed it out like a moron, 600ish on another), get the student loan situation under control (on reduced payments for now but I'd like to get on the 10 year plan rather than 25 years), and start saving (20% of income per the 50/30/20 rule). Average income right now is about two grand a month but I do a lot of freelance work so it can vary.

Figure I should save up for the year and invest once I have some capital, or should I wait to invest based on wherever the market is by that time?

 

[Amory]

Would it be a smart idea to wait until the next stock market recession to jump in on investing into an index fund?

Like I don't have the 3,000 needed up front to get in with Vanguard anyway. I've been paycheck to paycheck for basically my whole adult life - I'm 25 - plus I still have some credit card debt and student loan payments. My goal for this year is to eliminate the credit card debt (owe 4k on one because I maxed it out like a moron, 600ish on another), get the student loan situation under control (on reduced payments for now but I'd like to get on the 10 year plan rather than 25 years), and start saving (20% of income per the 50/30/20 rule). Average income right now is about two grand a month but I do a lot of freelance work so it can vary.

Figure I should save up for the year and invest once I have some capital, or should I wait to invest based on wherever the market is by that time?

If you have credit card debt, I'd absolutely take care of that first before opening a retirement account.

As far as waiting for the next recession, no, I don't see a point in that. Fact is, there's no telling when that will be. I would just start when you can.