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[Unknown Soldier]

What's funny is that there was recently a thread on Bogleheads that asked what percentage of stocks should be in International, and it turns out Vanguard said, "start at 20%" and John Bogle said, "no higher than 20%" so now everyone was like "awesome, 20% it is!" Lol. I personally am shooting for roughly a 2:1 ratio just because.

I guess I don't get the mentality of wanting a certain ratio of US/ex-US just because. I want whatever gives me the best returns right now. If it happens that in a decade internationals pick up, I'll look at getting it then. But if you've held international for the last 5-6 years you've made 0% returns while the S&P 500 has been up 80%. How is that a good investment?

 

[chaosblade]

I guess I don't get the mentality of wanting a certain ratio of US/ex-US just because. I want whatever gives me the best returns right now. If it happens that in a decade internationals pick up, I'll look at getting it then. But if you've held international for the last 5-6 years you've made 0% returns while the S&P 500 has been up 80%. How is that a good investment?

Most people aren't hands-on like you are.

And maintaining a ratio helps you buy low/sell high to an extent. Since the US market has been going up a lot while international has not, it means someone maintaining a ratio is going to be buying more shares of low international stock. Same amount of money, it's just netting them more shares. If international goes up, they get big returns from all those shares they accumulated while they were low. Then they start buying more into the relatively low in comparison US market to maintain the ratio.

It obviously doesn't have the potential to maximize returns like day trading index funds in your retirement account and trying to time the market (which carries additional risk), but it's effective for someone who may not look at their account more than once or twice a year.

 

[tokkun]

I guess I don't get the mentality of wanting a certain ratio of US/ex-US just because. I want whatever gives me the best returns right now. If it happens that in a decade internationals pick up, I'll look at getting it then. But if you've held international for the last 5-6 years you've made 0% returns while the S&P 500 has been up 80%. How is that a good investment?

The logic you are using is called "chasing returns", and is one of the classic mistakes of investing. The fact that something over-performed for the past 5 years does not mean it will in the next 5. It's the same sort of logic that drove people to invest in Nasdaq in 1999 (which just recently recovered to it's pre-crash high, btw) or in housing markets in 2007. In general, things which have overperformed recently (compared to historical performance) tend to underperform going forward - something called 'reversion to the mean'.

Like I said earlier, it is possible that something has changed, and that US stocks are just a fundamentally better investment now than International stocks, so there will be no reversion to the mean. However, that is a pretty bold claim, and deserves some strong evidence to back it up, which I have yet to see. It also bears repeating that the US dollar index is about 25% higher today than it was 5 years ago. That erased 25% in gains from International funds sold in US dollars. If you take that away, then International would not have been flat. Now, do you really think that the dollar can continue strengthening against other currencies indefinitely?

It obviously doesn't have the potential to maximize returns like day trading index funds in your retirement account and trying to time the market (which carries additional risk), but it's effective for someone who may not look at their account more than once or twice a year.

I think you are significantly understating things. All the evidence is that hands-off investment strategies produce higher expected returns than active strategies. They are not just 'effective' for people who don't want to spend much time. Unless you are a time traveler, an oracle, or extremely lucky, passive strategies are better, period.

There are all sorts of fun scientific studies about this stuff. People who never log in to their accounts outperform people who do. People who only get to see the price of their stocks once a year outperform people who get to see prices once a day. Being hands-off is simply better than being hands-on.

 

[Sherlock00]

Ok,

So I maintain a 401k at work, and I figure I need to get serious about investing, so is there good documentation for me to read to be up on this? Our work 401k goes through Fidelity currently, and its an amazing match, 100% up to 15%. So I max out my 401k for the annual pretty easily. What else should I look into investing? I could do hands on if its really that much better to do it, but I'm looking at long term obviously for later in life. Do I start a ROTH IRA now? We just started HSA accounts at work too, so I could potentially max that out I guess and use that as well? Is there something to read to better acquaint myself with what to do to maximize potential for the future? Or is there advice from guru's on here that will be just as good?

 

[Jharp]

Recently opened a Vanguard account and have $7500 in a money market fund with NO IDEA what to do with it. Any tips, GAF? All I hear is Index Fund Index Fund Index Fund, but there appears to be quite a few Index Funds, so what the fuck does that even mean?

 

[chaosblade]

Recently opened a Vanguard account and have $7500 in a money market fund with NO IDEA what to do with it. Any tips, GAF? All I hear is Index Fund Index Fund Index Fund, but there appears to be quite a few Index Funds, so what the fuck does that even mean?

OP covers this, but the general idea behind the recommendation is diversity. Index funds offer broad exposure to stocks and bonds which reduces risk, since a single company going under won't impact your funds. There are different ways you can go with investing and it depends on how simple you want to keep things.

A target date fund dumbs it down to 0 and handles all the allocation for you. The expense ratio is slightly higher than doing it yourself with the same funds though, and you may or may not like their choices for allocation.

Or you can do your own mix of total market/international/bonds for very simple, broad exposure. A little more effort, but a little lower on fees and gives you some freedom.

Or break it down further and invest in more specific markets or regions, but at this point you are making more specific bets on things, the funds have slightly higher fees, and it's generally more complex to deal with.

I think most here would recommend the first or second option there.

 

[tokkun]

Ok,

So I maintain a 401k at work, and I figure I need to get serious about investing, so is there good documentation for me to read to be up on this? Our work 401k goes through Fidelity currently, and its an amazing match, 100% up to 15%. So I max out my 401k for the annual pretty easily. What else should I look into investing? I could do hands on if its really that much better to do it, but I'm looking at long term obviously for later in life. Do I start a ROTH IRA now? We just started HSA accounts at work too, so I could potentially max that out I guess and use that as well? Is there something to read to better acquaint myself with what to do to maximize potential for the future? Or is there advice from guru's on here that will be just as good?

This is a good starting point for self-learning:
https://www.bogleheads.org/wiki/Getting_started

You can get good information in this thread as well. The beauty of retirement investing is that it is not rocket science. Although understanding how to optimize your tax situation can be a little detailed at first, the best investing advice is remarkably simple: Buy low cost, widely diversified funds, then leave them alone until you are getting closer to retirement.

To answer your specific questions, yes, IRAs and HSAs are also great ways to save for retirement (while minimizing your tax burden). Whether or not you should be maxing them out depends a bit on what your goals are, both for retirement and the immediate future. So the first thing to do is reflect on that. Do you want to buy a house? Have kids? Do you want to retire early? Are you the type to live large in retirement or be frugal? Retirement investing is a means to an end, so it's good to at least have an idea in mind of what you are working towards.

 

[Randolph Freelander]

A while back I did an in-kind transfer to roll over mutual funds from an Roth IRA to my Vanguard account. Looking at the account, I have a lot of investments in different mutual funds that I no longer want to keep due to performance/fees/etc.

What is the easiest way to move these all to the Vanguard Total Bond Market Index (VBMFX)? Pretty much just sell all of the funds individually and have them apply to my money market fund inside the Roth IRA? Then buy shares in VBMFX as long as I have over $3000?

I'm thinking this is the case but it just seems like there will be a lot of individual times I will have to do this (~ 23), wish there was a way to select more than one at a time. But in some cases if I sell them there is a $20 Vanguard fee which is pretty substantial for some of the funds that have barely any money in them. I wish I would have liquidated them before moving them over, any advice on how to handle them now?

What are the funds you want to dump? Is the fee to sell effectively 1% of the balance? 5%? More? Also, is the fee due to the nature of the fund you're selling or because the length of ownership? (So if you hold it longer, can you eliminate the fee completely?) Can't really answer this one specifically without more specifics, to be honest.

 

[anonymous_abc]

My wife's school doesn't offer any retirement benefits, no 403(b) or anything else.

Is there anything we can do about that? Seems like a dick move, I would have assumed even if they don't match it should cost them hardly anything to offer their employees a basic pre tax retirement plan.

 

[willow ve]

My wife's school doesn't offer any retirement benefits, no 403(b) or anything else.

Is there anything we can do about that? Seems like a dick move, I would have assumed even if they don't match it should cost them hardly anything to offer their employees a basic pre tax retirement plan.

To offer plans there is often a required match from the employer, ergo many employers have dropped the plans to save money.

 

[br0ken_shad0w]

Edit: duplicate

 

[br0ken_shad0w]

My wife's school doesn't offer any retirement benefits, no 403(b) or anything else.

Is there anything we can do about that? Seems like a dick move, I would have assumed even if they don't match it should cost them hardly anything to offer their employees a basic pre tax retirement plan.

Does your wife work at a public school? I know most states offer at least some sort of plan for teachers.

 

[anonymous_abc]

Does your wife work at a public school? I know most states offer at least some sort of plan for teachers.

Charter School her in LA.

 

[Mrbob]

What's funny is that there was recently a thread on Bogleheads that asked what percentage of stocks should be in International, and it turns out Vanguard said, "start at 20%" and John Bogle said, "no higher than 20%" so now everyone was like "awesome, 20% it is!" Lol. I personally am shooting for roughly a 2:1 ratio just because.

I'm roughly 62/38 USA to international. Though I usually go slightly against the grain of what bogleheads typically do.

 

[Izayoi]

If an employer offers a 401k with a match years down the road and frankly shit choices for funds, would it be better to open a retirement account with Vanguard in the meantime? (and then contribute when the match kicks in?)

Also it seems like I'm hyper aggressive compared to most in terms of my investment strategy (95% stocks, 5% bonds)... I'm not risk averse and the ups and downs in the market don't bother me at all (I am 25).

Is this a terrible idea like some would have me believe or is it fine if I'm ok to take on the risk? Seems like I'm giving up free money in the long run otherwise...

 

[Randolph Freelander]

If an employer offers a 401k with a match years down the road and frankly bad choices for funds, would it be better to open a retirement account with Vanguard in the meantime? (and then contribute when the match kicks in?)

Also it seems like I'm hyper aggressive compared to most in terms of my investment strategy (95% stocks, 5% bonds)... I'm not risk averse and the ups and downs in the market don't bother me at all (I am 25).

Is this a terrible idea like some would have me believe or is it fine if I'm ok to take on the risk? Seems like I'm giving up free money in the long run otherwise...

Regarding stock/bond split, 95/5 at 25 is too conservative, if you ask me. (Not if you ask any target date fund, though, as it is going to invariably be 90/10 even 40 years out.)

As for your 401k with a match that is years away with bad funds, here's three things:

1) Favor your personal IRA
2) If you max your IRA, go ahead and contribute to the 401K for the tax benefits
3) Keep your resume updated. Don't feel like you're married to this place if you can do better.

 

[Izayoi]

Regarding stock/bond split, 95/5 at 25 is too conservative, if you ask me. (Not if you ask any target date fund, though, as it is going to invariably be 90/10 even 40 years out.)

As for your 401k with a match that is years away with bad funds, here's three things:

1) Favor your personal IRA
2) If you max your IRA, go ahead and contribute to the 401K for the tax benefits
3) Keep your resume updated. Don't feel like you're married to this place if you can do better.

Yep, that was my feeling. Retirement is so far away that I might as well go all-in on stocks. I was doing it (bonds) to make my dad happy but I am extremely solid financially and honestly I think that at this point a retirement fund is just going to be icing on the cake, so to speak.

I was asking more for my wife regarding the 401k, as I have a pension which is compulsory at 9% of my income (I also contribute to a 403b at an additional 6%).

She, on the other hand, is not so lucky. She will almost certainly be moving companies before her employer match kicks in (two years for partial at 2%, three years for full 3%), unless she gets into an upper management position relatively quickly. I looked over the funds offered and they are all bunk with high expense ratios.

Am I understanding correctly that she should open a Vanguard account, and start a Roth - then contribute to its limit, THEN go back into her employer 401k with the leftovers?

 

[Randolph Freelander]

Am I understanding correctly that she should open a Vanguard account, and start a Roth - then contribute to its limit, THEN go back into her employer 401k with the leftovers?

Yes, though both could be done concurrently if you know it's in the budget to do so. However you go about it, hit that IRA max.

 

[Izayoi]

Yes, though both could be done concurrently if you know it's in the budget to do so. However you go about it, hit that IRA max.

On a semi-related note, should I be contributing to my own Roth in addition to my pension and 403b? Should I be prioritizing one over the other?

 

[Randolph Freelander]

On a semi-related note, should I be contributing to my own Roth in addition to my pension and 403b? Should I be prioritizing one over the other?

Add a Roth if you can, certainly. Standard advice around here is to utilize the employer plan up to the full match, if offered, then max an IRA, then continue contributing the employer plan, and finally do outside investing. However, for simplicity of management, you might deviate and favor the employer plan beyond just the match and knock the IRA down to the next spot, though this is more applicable if your employer's fund options are good.

 

[tokkun]

On a semi-related note, should I be contributing to my own Roth in addition to my pension and 403b? Should I be prioritizing one over the other?

It's almost always a good idea to max out your Roth IRA every year if you have the free capital to do so, because it maximizes your options. If you decide you need that money for something else in the near future, you can always withdraw the principal later without penalty. The only drawback is that you can't get any of the gains easily, but over a short time period the gains will be small compared to the principal. You can even put the money in a stable value fund if you want to use it as your emergency fund and are worried about stock volatility.

On the other hand, if you don't contribute and regret it later, there's nothing you can do about it. I didn't make any contributions for years when I was in graduate school, and am paying for it now. And I mean that literally, as I just got my 1099-DIV form in the mail from my non-tax-advantaged account.

 

[Moppet13]

If an employer offers a 401k with a match years down the road and frankly shit choices for funds, would it be better to open a retirement account with Vanguard in the meantime? (and then contribute when the match kicks in?)

Also it seems like I'm hyper aggressive compared to most in terms of my investment strategy (95% stocks, 5% bonds)... I'm not risk averse and the ups and downs in the market don't bother me at all (I am 25).

Is this a terrible idea like some would have me believe or is it fine if I'm ok to take on the risk? Seems like I'm giving up free money in the long run otherwise...

I'd definitely suggest opening your own retirement account if you work has poor fund choices with high expense ratios and isn't currently matching. You can probably ask your work about adding low cost index funds to your retirement options. But until then it sounds like you're probably just bleeding money on expense ratios.

I asked a similar question a couple pages earlier, one response was asking why I'd want to over complicate things and another was I believe questioning my risk tolerance if things weren't panning out correctly. I'm personally not worried about my risk tolerance, I spent years as a semi professional gambler and I work in a casino so short term losses really don't both me. So I don't see why I shouldn't shape my portfolio to take on more risk.
I'm currently sitting at (before and after I asked my question earlier in the thread)
33% S&P 500
33% Small cap
23% midcap
11% International
0% bonds

The issue with making things more complicated like this is picking which index funds you want to follow. For large cap S&P 500 is usually a pretty easy choice, it's generally considered to be the "market" when people reference performance. But then you get to mid cap and you have several funds like the S&P 400, Russell mid cap index, and the Wilshire US Midcap index. Small cap too, you'll have to pick between the Russell 2000 and S&P 600. The Russell 2000 is generally the go to small cap index, but the S&P 600 has been out preforming it. Expense ratios was another thing pointed out to me, but if I wasn't aware of expense ratios I don't know why I would be posting in this thread, it's pretty much the entire OP. My works small cap fund has a massive expense ratio of 1.2% but fidelity and vanguard have much cheaper small cap index funds so if you're going through them it's not a big issue. But historically MidCap has outperformed Small Cap which has outperformed large cap. Whether or not this trend will continue no one knows.

I believe the OP responded to my post asking why I'd want to sector invest, but I have never heard anyone refer to large cap, mid cap, and small cap as sectors opposed to things like Healthcare, energy, utilities, Financial etc etc. Maybe I'm wrong, I'd probably have gotten a more detailed response if I hadn't forgotten to respond to their posts. But I don't believe categories of capitalization are comparable to sectors.

I'm contemplating making things a bit simpler, but through my 401k id still have to break down international, large cap, and mid cap. So adding small cap on the side I don't see as a big burden.

Personally having taken into account other people's concerns I'm not too worried about increasing my risk or my risk tolerance. I don't mind balancing my funds. my expense ratios are low in all my funds, I'm only 25 so time is on my side for the time being. So exposing myself to a bit more risk seems to be something I feel I can handle.

I'm mostly replying to this so other posters will be able to weigh in on your post, I wouldn't say my opinion isn't worth anything but I'm just going to pretty much agree with you which probably isn't the most helpful reply. I forgot to reply to my own responses for my similar question early on so I didn't get the depth of discussion I was looking for and that may have left me missing some key points to assuming more risk.

 

[tokkun]

I'm personally not worried about my risk tolerance, I spent years as a semi professional gambler and I work in a casino so short term losses really don't both me. So I don't see why I shouldn't shape my portfolio to take on more risk.
I'm currently sitting at (before and after I asked my question earlier in the thread)
33% S&P 500
33% Small cap
23% midcap
11% International
0% bonds

The issue with making things more complicated like this is picking which index funds you want to follow.

Personally I think the biggest issue with doing this type of allocation is behavioral risk.

Here's a hypothetical scenario for you:

It's 2020. Over the last 3 years, International has significantly outperformed US Small Cap in the past 3 years, as investors pull back from a Trump-inspired valuation bubble and the US dollar gives back some of its gains of the past few years. You are at your computer screen ready to rebalance your account. Do you:
A: Stick with the same allocation.
B: Shift money away from small cap and into international

The risk of these intricate plans is that you pick option B and end up chasing the market.

So, if you want to follow this type of many-fund strategy, I would strongly encourage you to actually sit down and write out a document describing what you want to do with your investments for the next 10 years. Then before you make any changes to your allocation besides rebalancing it, you read that document. Even better if you include some disincentives to deviating from it like "If I want to alter this plan, I need to do 100 pushups a day for a month first".

That may sound a little silly, but the fact is that once you have gotten to the point where you understand the fundamental concepts of retirement investing, the biggest obstacle to success is mastering your own behavior. And ironically, the more you learn about investing, the harder this is to do, because it is so easy to think that you are just "optimizing" whenever you tinker with your investments. People who find investing boring often end up doing better because they are happy to put their money in a target date or total market fund and leave it alone, rather than constantly tinkering to their own detriment.

 

[phanphare]

so full disclosure, I am out of my element in regards to all of this stuff

ok so I'm starting up a simple IRA with my employer matching up to 3% but it's with T. Rowe Price so I'm trying to find the equivalent funds to what's in the OP. I believe I can pick from pretty much everything they offer so would the two funds to choose be this one for the total domestic stock market and this one for the total international stock market?

if so should I just go 100% into both of those funds with a 60/40 split between domestic and international? I'm 27, by the way.

thanks

 

[Ogodei]

My grandmother passing away means i'm getting an amount in the low 5-figures, first to wipe out my student debt, second to retroactively max out my 2016 IRA contributions (paid $2400, max $5500), and then max out this year's (plan on contributing $3000, so i'll toss in $2500).

The rest i can sit on in a money-market account at 0.9% interest until i need another car in about 5 years.

That aside from the actual income freed up by the lack of debt (though that means i'm missing out on that sweet tax refund too).

 

[Randolph Freelander]

so full disclosure, I am out of my element in regards to all of this stuff

ok so I'm starting up a simple IRA with my employer matching up to 3% but it's with T. Rowe Price so I'm trying to find the equivalent funds to what's in the OP. I believe I can pick from pretty much everything they offer so would the two funds to choose be this one for the total domestic stock market and this one for the total international stock market?

if so should I just go 100% into both of those funds with a 60/40 split between domestic and international? I'm 27, by the way.

thanks

The domestic one only covers the S&P 500, it's missing small and mid components. It would be nice if you get those, either as separate funds or as part of a true total stock market index. Sometimes, there is a blended small/mid fund that can be used to supplement another 500 fund.

If you do find such funds, Vanguard has the domestic parts split roughly 8 parts large cap, 2 parts mid, and 1 part small, or roughly 73%, 18%, and 9%. Split your domestic component roughly along those lines (multiplying your domestic percentage by those percentages) to follow a similar strategy.

And keep looking. I'm not overly enthused about the expenses on those funds, particularly the international.

 

[Randolph Freelander]

The rest i can sit on in a money-market account at 0.9% interest until i need another car in about 5 years.

The money market fund is losing real value, since it's not keeping up with inflation. If you're sure about the 5 years and you're up to a small amount of risk, you could park it in a target date retirement fund, either 2020 or 2025, which would give you a bit of stock market exposure with a significant chunk more safely (but still not without risk) in bonds.

 

[phanphare]

The domestic one only covers the S&P 500, it's missing small and mid components. It would be nice if you get those, either as separate funds or as part of a true total stock market index. Sometimes, there is a blended small/mid fund that can be used to supplement another 500 fund.

If you do find such funds, Vanguard has the domestic parts split roughly 8 parts large cap, 2 parts mid, and 1 part small, or roughly 73%, 18%, and 9%. Split your domestic component roughly along those lines (multiplying your domestic percentage by those percentages) to follow a similar strategy.

And keep looking. I'm not overly enthused about the expenses on those funds, particularly the international.

ok cool, I'll look some more when I get home. thanks

 

[hendersonhank]

Is there a calculator to compare putting money in a work 401k (the non-matched portion) with high expense ratios but with the tax break, versus just buying my own index funds in my own brokerage account?

Vanguard's index funds not only perform better than the American Funds stuff my work offers, but has .16% expense compared to .58% or so. I'm still contributing to the 401k to max out the match, but I'd like to know if the tax break will be enough of a factor to make it worth putting more into it after the match.

 

[phanphare]

The domestic one only covers the S&P 500, it's missing small and mid components. It would be nice if you get those, either as separate funds or as part of a true total stock market index. Sometimes, there is a blended small/mid fund that can be used to supplement another 500 fund.

If you do find such funds, Vanguard has the domestic parts split roughly 8 parts large cap, 2 parts mid, and 1 part small, or roughly 73%, 18%, and 9%. Split your domestic component roughly along those lines (multiplying your domestic percentage by those percentages) to follow a similar strategy.

And keep looking. I'm not overly enthused about the expenses on those funds, particularly the international.

ok so I looked some more and I found a fund that is the total domestic stock market here

I didn't find anything international with lower expenses though

I basically looked here and then sorted by the lowest expense ratio

would it be wise to just go 100% domestic to avoid the expenses on the international fund?

 

[Izayoi]

Add a Roth if you can, certainly. Standard advice around here is to utilize the employer plan up to the full match, if offered, then max an IRA, then continue contributing the employer plan, and finally do outside investing. However, for simplicity of management, you might deviate and favor the employer plan beyond just the match and knock the IRA down to the next spot, though this is more applicable if your employer's fund options are good.

It's almost always a good idea to max out your Roth IRA every year if you have the free capital to do so, because it maximizes your options. If you decide you need that money for something else in the near future, you can always withdraw the principal later without penalty. The only drawback is that you can't get any of the gains easily, but over a short time period the gains will be small compared to the principal. You can even put the money in a stable value fund if you want to use it as your emergency fund and are worried about stock volatility.

On the other hand, if you don't contribute and regret it later, there's nothing you can do about it. I didn't make any contributions for years when I was in graduate school, and am paying for it now. And I mean that literally, as I just got my 1099-DIV form in the mail from my non-tax-advantaged account.

I understand, thanks for all of the advice you guys. Really great insight and helped me get this sorted once and for all (hopefully).

My employer does not match my 403b (they are already contributing 12% of my salary to my pension fund) so my cascading plan looks something like this:

- Open a Roth and contribute $5500/yr
- Contribute up to $18000/yr (max) to 403b
- Put any leftovers into Vanguard Total Index fund on a taxable account

For my wife, we will:

- Open a Roth and contribute $5500/yr
- Contribute to her 401k even without match for tax advantages up to $18000/yr
- Put any leftovers into Vanguard Total Index fund on a taxable account

Do you guys keep your emergency funds in CDs or do you use other money market accounts? I was looking at some of those "high" interest online checking accounts which don't quite beat inflation but come close.

 

[Randolph Freelander]

ok so I looked some more and I found a fund that is the total domestic stock market here

I didn't find anything international with lower expenses though

I basically looked here and then sorted by the lowest expense ratio

would it be wise to just go 100% domestic to avoid the expenses on the international fund?

100% as you are starting out isn't the worst thing in the world. Once your balance grows to something significant, you'll want to be more diversified, but initially? I wouldn't worry about it too much.

One thing you might consider is contributing to your employer plan up to the point where you can secure the full match, and then open and contribute to an independent IRA. You can then diversify using your employer account for one class of funds, and your personal IRA for another.

Another thought is to consider just how long you anticipate being with that employer. Be realistic, is this a long term partnership? If it's short term, then a slightly higher than desirable expense ratio isn't going to kill you, and you can roll those funds over into an IRA when you change jobs.

 

[Randolph Freelander]

Do you guys keep your emergency funds in CDs or do you use other money market accounts? I was looking at some of those "high" interest online checking accounts which don't quite beat inflation but come close.

I basically don't even have an emergency fund. I'll quote the recommendations to anyone who asks, but for me personally? I've decided I would rather just buy equities and roll with the risks.

 

[phanphare]

100% as you are starting out isn't the worst thing in the world. Once your balance grows to something significant, you'll want to be more diversified, but initially? I wouldn't worry about it too much.

One thing you might consider is contributing to your employer plan up to the point where you can secure the full match, and then open and contribute to an independent IRA. You can then diversify using your employer account for one class of funds, and your personal IRA for another.

Another thought is to consider just how long you anticipate being with that employer. Be realistic, is this a long term partnership? If it's short term, then a slightly higher than desirable expense ratio isn't going to kill you, and you can roll those funds over into an IRA when you change jobs.

ok awesome, thanks for the advice

 

[scurker]

Do you guys keep your emergency funds in CDs or do you use other money market accounts? I was looking at some of those "high" interest online checking accounts which don't quite beat inflation but come close.

I changed my strategy this year. Previously, I kept my emergency fund in a saving account, but moved most of it to a Total Bond Index Fund. My reasoning is, ideally since it's an emergency fund I won't need to touch it except in a case of an emergency. And if there's an emergency where I need that much liquid cash, it's likely that a week or so turnaround time should be okay. I realize that might be more risk than some people want to take on, but I feel comfortable given that it's in a little safer investment hopefully outpacing inflation.

I still keep a small amount of liquid cash in savings if I need immediate cash.

 

[fatty]

What are the funds you want to dump? Is the fee to sell effectively 1% of the balance? 5%? More? Also, is the fee due to the nature of the fund you're selling or because the length of ownership? (So if you hold it longer, can you eliminate the fee completely?) Can't really answer this one specifically without more specifics, to be honest.

Ah, sorry about that. Basically these are $20 fees per fund imposed by Vanguard, not due to the length of ownership but a standard transaction fee. Before I knew about index funds I had my Roth 401k rolled over into a Roth IRA and my (no longer with me) financial advisor bought quite a few different funds. Unfortunately, the amount of some of these funds is only around $37 so selling them off automatically cuts the amount down to $17.

About 2/3 of the ~23 funds each have the $20 Vanguard fee with the others having no transaction fee from Vanguard. Since the sum is only about $3000 I will probably just rip the bandaid and do it just to simplify things. Live and learn but at least I can pass along the knowledge to my kids and others.

Thanks for the response, though.

 

[hockeypuck]

I changed my strategy this year. Previously, I kept my emergency fund in a saving account, but moved most of it to a Total Bond Index Fund. My reasoning is, ideally since it's an emergency fund I won't need to touch it except in a case of an emergency. And if there's an emergency where I need that much liquid cash, it's likely that a week or so turnaround time should be okay. I realize that might be more risk than some people want to take on, but I feel comfortable given that it's in a little safer investment hopefully outpacing inflation.

I still keep a small amount of liquid cash in savings if I need immediate cash.

Is this in a taxable account? Aren't you going to be paying taxes next year on the distributions?

 

[Randolph Freelander]

Is this in a taxable account? Aren't you going to be paying taxes next year on the distributions?

I paid taxes in 2016 on dividends. It's a small price to pay for growth -- and those very dividends!

 

[hockeypuck]

I paid taxes in 2016 on dividends. It's a small price to pay for growth -- and those very dividends!

Then why not a muni bond index fund if it's going to be for emergency savings; at least he wouldn't have to pay federal taxes on the dividends.

 

[scurker]

Is this in a taxable account? Aren't you going to be paying taxes next year on the distributions?

Yes, it's a taxable account. But it'll be taxed if I make interest income or bond income.

 

[fatty]

Yes, it's a taxable account. But it'll be taxed if I make interest income or bond income.

Just FYI, if you hold the investment for longer than a year you will be taxed at the lower long term capital gains rate on your gains instead of the ordinary income tax rates.

 

[Izayoi]

I'm confused... I was under the impression that it would be best to keep your bond investments in a tax-advantaged account due to their nature - which would make them less accessible for an emergency fund, generally speaking.

Or, someone mentioned being able to pull the principal from a Roth whenever you want - assuming the balance is something that is comfortable for my wife and I, could we use our Roth accounts as our emergency fund? I would be more than happy to hold some of the balance in bonds if that's the case.

Municipal funds seem like more trouble than they are worth. Would you have to hold them to maturity before you sold them to get any benefit from actually buying them? I don't see why I'd want to hold them for an emergency fund.

 

[tokkun]

I basically don't even have an emergency fund. I'll quote the recommendations to anyone who asks, but for me personally? I've decided I would rather just buy equities and roll with the risks.

Same philosophy here. I have enough in my taxable investment account to handle most plausible emergencies even if the market happened to be down 50% at the time. Yes, it would be costlier to pay for an emergency expense out of stocks if the market was down, but given the higher expected return on stocks compared to cash, I'll still come out ahead unless emergencies are happening every year.

Now in practice, I do keep a few thousand in a money market account in order to handle monthly variations in bills. Keeping a zero cash position would be really inconvenient unless I hired an accountant to keep track the of tax implications of each sale.

I'm confused... I was under the impression that it would be best to keep your bond investments in a tax-advantaged account due to their nature - which would make them less accessible for an emergency fund, generally speaking.

First of all, that advice is not based on the assumption that the bonds are being used as an emergency fund, so don't try to over-generalize it.

Second, it is debatable about whether that bond placement advice is actually correct if your retirement account is a Roth account. The conventional wisdom came from a historical time period when bond yields were much higher than stock dividends. These days they are not *that* different (1.9% for VTSAX vs 2.48% for VBTLX), so the yearly tax burden is also going to be not that different. However, the stocks are expected to appreciate much faster and therefore would benefit much more from avoiding taxes on sales. Hence, it may be better to keep the favor stocks over bonds in Roth accounts.

Third, you can further reduce the difference by using a tax-exempt bond fund like VWIUX if it is in your taxable fund.

Or, someone mentioned being able to pull the principal from a Roth whenever you want - assuming the balance is something that is comfortable for my wife and I, could we use our Roth accounts as our emergency fund? I would be more than happy to hold some of the balance in bonds if that's the case.

Yes, but pulling from your Roth should be the last resort option in an emergency, because once the money is out, you can't put it back in. If you have funds in taxable accounts, it's better to pull those first before going to the Roth.

 

[SonicXtreme]

what are some good index funds to invest in with some money that's sitting stagnant right now? I already have a good chunk of varied individual stocks but i'm looking for 2 or 3 indexes i can pump into, sit on for 1-6 years, and take my money out when i need it, as opposed to it just sitting

 

[Moppet13]

what are some good index funds to invest in with some money that's sitting stagnant right now? I already have a good chunk of varied individual stocks but i'm looking for 2 or 3 indexes i can pump into, sit on for 1-6 years, and take my money out when i need it, as opposed to it just sitting

Your states municipal bond fund maybe? You won't see a lot of growth but you won't have any crazy tax implications when you decide to withdraw either, it should be tax exempt on all levels in most cases. You won't see crazy growth but you can't really expect that from anything with a time frame of 1-6 years.

 

[Izayoi]

Same philosophy here. I have enough in my taxable investment account to handle most plausible emergencies even if the market happened to be down 50% at the time. Yes, it would be costlier to pay for an emergency expense out of stocks if the market was down, but given the higher expected return on stocks compared to cash, I'll still come out ahead unless emergencies are happening every year.

Now in practice, I do keep a few thousand in a money market account in order to handle monthly variations in bills. Keeping a zero cash position would be really inconvenient unless I hired an accountant to keep track the of tax implications of each sale.

First of all, that advice is not based on the assumption that the bonds are being used as an emergency fund, so don't try to over-generalize it.

Second, it is debatable about whether that bond placement advice is actually correct if your retirement account is a Roth account. The conventional wisdom came from a historical time period when bond yields were much higher than stock dividends. These days they are not *that* different (1.9% for VTSAX vs 2.48% for VBTLX), so the yearly tax burden is also going to be not that different. However, the stocks are expected to appreciate much faster and therefore would benefit much more from avoiding taxes on sales. Hence, it may be better to keep the favor stocks over bonds in Roth accounts.

Third, you can further reduce the difference by using a tax-exempt bond fund like VWIUX if it is in your taxable fund.

Yes, but pulling from your Roth should be the last resort option in an emergency, because once the money is out, you can't put it back in. If you have funds in taxable accounts, it's better to pull those first before going to the Roth.

More great advice... I can't thank you enough.

What kind of money market instruments do you use? CDs are so abysmal that I have a hard time justifying their use over a high-interest online checking account.

 

[GhaleonEB]

what are some good index funds to invest in with some money that's sitting stagnant right now? I already have a good chunk of varied individual stocks but i'm looking for 2 or 3 indexes i can pump into, sit on for 1-6 years, and take my money out when i need it, as opposed to it just sitting

1-6 years is a pretty big window. I'd sit on the money if it was one year, but invest were it 3-6 years. Perhaps split it and keep some on hand for short term and invest a portion for the longer end of that horizon. It also really depends on your risk tolerance.

That said, I keep my non-retirement funds in here. It's a four-in-one index fund, basically just a basket of four Fidelity index funds. 60% US stock (12% small cap, 48% S&P500), 25% international stocks, 15% domestic bond fund. Easy way to diversify.

Other options would include bond funds, which would be more stable.

 

[scurker]

I'm confused... I was under the impression that it would be best to keep your bond investments in a tax-advantaged account due to their nature - which would make them less accessible for an emergency fund, generally speaking.

In my situation, I'm still contributing to 401k/IRA. Just instead of having my emergency fund sitting in a savings account, it's just in a normal investment account instead. There's no reason bond funds are any better in taxed vs tax-advantaged accounts, just rather they're a little more stable than other funds. It really just depends on what your investment goals are.

Or, someone mentioned being able to pull the principal from a Roth whenever you want - assuming the balance is something that is comfortable for my wife and I, could we use our Roth accounts as our emergency fund? I would be more than happy to hold some of the balance in bonds if that's the case.

You could certainly do that, as long as you're aware of the limitations of roth. Personally, I prefer keeping my concerns separated but it's just a matter of what your risk profile is and how much you would expect to contribute. Depending on the size of your emergency fund, you may not be able to contribute everything in a single year.

 

[tokkun]

More great advice... I can't thank you enough.

What kind of money market instruments do you use? CDs are so abysmal that I have a hard time justifying their use over a high-interest online checking account.

Just a plain Money Market checking account with Ally, although I actually have to maintain two accounts since I need to get around the Money Market limitation on 6 debit transfers per month :/ Probably I should just transfer it to a different type of account without such a limit, since the interest on the money is not so great anyway.

Paycheck is deposited there, and automatic payments from credit cards are debited. I usually have positive cash flow, so at the end of the month I transfer out money to my taxable investment account to keep the cash balance from getting too high.

 

[Izayoi]

In my situation, I'm still contributing to 401k/IRA. Just instead of having my emergency fund sitting in a savings account, it's just in a normal investment account instead. There's no reason bond funds are any better in taxed vs tax-advantaged accounts, just rather they're a little more stable than other funds. It really just depends on what your investment goals are.

You could certainly do that, as long as you're aware of the limitations of roth. Personally, I prefer keeping my concerns separated but it's just a matter of what your risk profile is and how much you would expect to contribute. Depending on the size of your emergency fund, you may not be able to contribute everything in a single year.

Our emergency fund is definitely too large to replinish on a yearly basis with a Roth, so I think we will be looking at keeping it in a taxable account with Vanguard.

Just a plain Money Market checking account with Ally, although I actually have to maintain two accounts since I need to get around the Money Market limitation on 6 debit transfers per month :/ Probably I should just transfer it to a different type of account without such a limit, since the interest on the money is not so great anyway.

Paycheck is deposited there, and automatic payments from credit cards are debited. I usually have positive cash flow, so at the end of the month I transfer out money to my taxable investment account to keep the cash balance from getting too high.

What kind of interest rate do you get? It seems some online checking accounts get the same rates as money markets with much better flexibility (and lower minimum balances, as well).

I'm looking at this list, for reference.