30 to 40 years is a long time for things to change. There's probably not too much value in sweating the details too much this far out. Although this far out it's probably better to err on the side of caution and maybe overshoot what you might actually need. The earliest dollars you save are worth the most too, thanks to compounding.
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How to Invest for Retirement
- Thread starter Piecake
- Start date
chaosblade
Unconfirmed Member
Basically just started a 403(b) from work so this is the strategy they're doing for me. I'm putting $100 every month. Is their strategy good or should I make some changes?
Most of those are terrible with 1% or higher expense ratios. Your employer may eat some of the fees for you, but probably not enough to make most of those a good deal. Realistically they are probably passing all of it on to you.
These are terrible and you should get away from them ASAP.
American Century Mid Cap Value (1.01)
GAMCO Small Company Value (1.08)
Invesco VI Global Real Estate (1.43)
Ivy VIP Energy (1.2)
Lazard Emerging Markets Equity (1.1)
MFS International Value (1.01)
These aren't very good but you may want a little in them just for the sake of more diversity. I personally wouldn't do it though.
T Rowe Price Growth Stock (.67)
Blackrock Basic Value (.55)
This one is decent.
Equity 500 (.25)
Do you have any other options that you aren't currently using?
I have a list of about 3 pages full of stocks and funds to pick from... is pretty overwhelming lol. Plus I mentioned on the other post that I'm only get charged a flat 0.8% management fee cuz I asked the advisor just to make sure.
The management fee is what the company that holds your 403(b) will charge you annually. Expense ratios are on top of that and will be invisible to you as they happen within the mutual funds you invest in. The result of expense ratios is lower returns, which compound hugely over time.
Started doing my taxes for the year in Turbotax, and it tells me I made too many contributions to my Roth IRA because I earned more than $10k last year. Turns out since I'm married and filing separately, the limit is not even a tenth of what I thought it was...
I know in general filing jointly is the recommended way to do things, but my wife is not a US citizen, and we don't live in the US, so this way she doesn't need to mess at all with the US tax system... I guess my only option is to move all my contributions from last year into a traditional IRA? What about contributions from last year, but before I got married? Or is it all contributions from the year I got married that are haram?
The main advantage of Roth over Trad was that as an expat, my current US tax rate is effectively 0, so it'll never get lower than now. Oh well
I know in general filing jointly is the recommended way to do things, but my wife is not a US citizen, and we don't live in the US, so this way she doesn't need to mess at all with the US tax system... I guess my only option is to move all my contributions from last year into a traditional IRA? What about contributions from last year, but before I got married? Or is it all contributions from the year I got married that are haram?
The main advantage of Roth over Trad was that as an expat, my current US tax rate is effectively 0, so it'll never get lower than now. Oh well
Started doing my taxes for the year in Turbotax, and it tells me I made too many contributions to my Roth IRA because I earned more than $10k last year. Turns out since I'm married and filing separately, the limit is not even a tenth of what I thought it was...
I know in general filing jointly is the recommended way to do things, but my wife is not a US citizen, and we don't live in the US, so this way she doesn't need to mess at all with the US tax system... I guess my only option is to move all my contributions from last year into a traditional IRA? What about contributions from last year, but before I got married? Or is it all contributions from the year I got married that are haram?
The main advantage of Roth over Trad was that as an expat, my current US tax rate is effectively 0, so it'll never get lower than now. Oh well
You should probably talk with a tax professional about this. The IRA rules for expats are a lot different.
https://thunfinancial.com/iras-roth-iras-and-the-conversion-decision-for-americans-living-abroad/
juliushandle
Member
i've been contributing to my 401k for over a decade and have only contributed in index funds. however, i do an analysis with fidelity and they suggest i allocate about 40% into my bond funds.
who is right here? what does fidelity have to gain from steering me one way and what does Buffet and economist have to gain by steering me another way?
40% into bond funds is a very conservative allocation. It might be worth looking at Fidelity's target date funds and seeing what their allocations, to see what Fidelity uses in their own investments.
https://www.fidelity.com/mutual-funds/fidelity-fund-portfolios/freedom-funds
Use the wheel tool on that page to see their recommended allocations. If I set retirement to 20 years from now, they recommend 10% bonds.
Buffet is simply offering good advice that is applicable to most people. I don't know why your advisor at Fidelity suggested such a high mix of bonds, but that's very unusual. Their own retirement funds don't hit 40% bonds until you are actually in retirement.
Randolph Freelander
Member
Bond funds can also be index funds. Index funds can cover a broad range of classes, but the main idea is that they are passive, not actively managed. This results in lower expenses and a lower drag on earnings.
Regarding the 40%, are you retiring within the next 5-10 years? Does Fidelity think that you are? You don't need bond holdings to be that high unless you are close to retirement. For example, Vanguard's 2020 target date fund is only at 43% bonds, and it's for people literally retiring between now and 2022.
juliushandle
Member
odd, i checked my settings and i did have my retirement age goal at 60 which is like 20+ yrs but it still showed that i was too aggressive with my allocations and suggested i contribute more into bonds. i'll leave it with the index funds.
Although I applaud the inherent skepticism when listening to investment advice, I'm not sure this one comes down to "what do they have to gain". Some people simply have different opinions on how much risk is appropriate. People who think you should take less risk will recommend more bonds (or some other low volatility alternative like cash or TIPS).
Jack Bogle, the father of the index fund and whom Buffett recently praised effusively, often recommends the "age-in-bonds" approach; i.e. if you are 30, you would have 30% bonds and 70% stocks. Some people find that to be too conservative of an allocation.
There is one other point I would make about Buffett. He is somewhat famous for recommending a portfolio that is 90% S&P 500 and 10% treasury bonds. What people often forget to mention is that he gave this answer about how he would recommend that his wife invest their money after his death. You have to keep in mind that for Buffett, 10% of his estate is still a huge fortune. His widow could live off that indefinitely, even through a prolonged bear market in stocks. The same might not be true for someone whose total savings is $200K. Bogle is incidentally a billionaire as well, so take his opinion with that in mind as well.
Anyway, you should takeaway the similarity of their arguments as well:
- They agree on using passive investment strategies that minimize fees.
- They agree on holding a diversified portfolio.
- They agree on setting some portion of your allocation in low-volatility, non-stock funds to reduce risk in your portfolio.
- They disagree on what that low-volatility alternative should be.
- They disagree on how much risk you should take on.
Unknown Soldier
Member
For some reason the big online brokers are having a crazy price war. I'm not complaining, I used to pay $8.95 a trade and soon I'll be paying $4.95 lol. I wonder if stuff like Robinhood is having an effect too.
PflargBlarg
Member
Agree with the rest of your post, but this is highly incorrect. Jack Bogle is well under $100 million. That is of course still quite a lot of money, but not anywhere near a billionaire. Warren Buffett mentioned this himself in his most recent letter to the shareholders, that Bogle has done the most for the common investor but has not profited greatly from it.
http://www.businessinsider.com/jack-bogle-mutual-fund-wealth-2012-8
Somewhat out of date, but I imagine his wealth hasn't increased significantly since then.
Thanks for the correction. Not sure where I got that misconception from.
Ah, fuck. I was planning on talking to a tax lawyer soon, this just makes that that much more urgent. Thanks for the link.
World government, where are you?
anonymous_abc
Member
2.
two.
second option.
manage yourself.
It's not as hard as it sounds and will save you literally tens of thousands of dollars over your lifetime!
401ks are retirement programs attached to your employer. The intent (IIRC) was to create a program similar to a pension, but funded by the employee. Typically, this takes the form of a percentage taken out of your paycheck (e.g. 2%) put into the 401k. Because the employer is the one setting it up, they are the ones who determine the management company and funds available. That means your options for a 401k are typically narrower than for an IRA.
401ks also do come in Roth and Traditional flavors but Roth is rarer. In the case you do have a Roth 401k option, employee matching is non-Roth.
When your employment ends for whatever reason, you can roll a 401k into an IRA (or into your next employer's 401k).
IRAs are meant to be a supplement to employer-based retirement options (like 401ks and pensions). I think that's the reason why they're limited to a set amount of money (reason being, if you're able to put more in you're already at an advantage; IRAs are meant to tax-advantage those who can't afford to put as much into retirement). Unlike 401ks, you have full control over where the money is invested.
Further reading: 401k , Roth IRA
Are there any specific questions you have?
TheOfficeMut
Unconfirmed Member
Filed taxes yesterday. During the process with Turbo Tax I was asked if I have an IRA which can be claimed by April 12, 2017 for further tax deduction. I finished the filing and now today I started the process of opening a Roth IRA. I understand that because my contributions to this are already taxed, it cannot deduct anything on my filing. Either way Roth IRA is what I primarily want because I'd like to be able to withdraw on my contributions penalty-free whenever I want and I will have a much better paying job by the time I retire, as well as a higher tax bracket.
I am using Vanguard. I put in $500 for 2016 for the hell of it and $1500 for 2017 to start. I still have to send in physical paper work with a voided check to show that proof.
I am using Vanguard. I put in $500 for 2016 for the hell of it and $1500 for 2017 to start. I still have to send in physical paper work with a voided check to show that proof.
Hey y'all. New to the thread, so apologies if this is well covered, but I'm wondering if there are some guides out there for assessing appropriate amounts of risk when investing? Something that takes into account age, income, expected inheritance, etc. All of those things are particular to my situation that would influence the aggressiveness of my investment plan.
Like an IRA, but done through your employer. Main differences: bigger contribution limits, you can only contribute money earned that year, and it's harder to withdraw from.
Because the government also wants your tax money. They want to encourage *some* saving, but they don't want Mitt Romney to be able to be able to put $100 million in his IRA and not have to pay any taxes on it.
Vanguard Questionnaire
That's a general tool that'll give you an idea at least what percentages you should be investing but as far as funds themselves I'm not sure
TheLostBigBoss
Banned
So cross posting this from the other investment thread.
I'm about to talk to my neighbor who has a shit ton of experience in investing and saving. Just got off a six month co-op, still working part time, so I have a good chunk of money that I plan on putting into some type fund.
Although, I still have around a year and a half of school left, that will be around $30,000, which I can get from loans if I want (I don't have any debt atm).
I'm perfectly fine taking out loans for the rest of my school needs and investing my current money into a fund. In the grand scheme of things, 30K for loans isn't much, would it be wise to try and invest, say 10K now, take the loans out and just pay them off after I graduate?
I'm about to talk to my neighbor who has a shit ton of experience in investing and saving. Just got off a six month co-op, still working part time, so I have a good chunk of money that I plan on putting into some type fund.
Although, I still have around a year and a half of school left, that will be around $30,000, which I can get from loans if I want (I don't have any debt atm).
I'm perfectly fine taking out loans for the rest of my school needs and investing my current money into a fund. In the grand scheme of things, 30K for loans isn't much, would it be wise to try and invest, say 10K now, take the loans out and just pay them off after I graduate?
anonymous_abc
Member
30 Million, not bad.
;p
Mathematically it really depends on what sort of interest that debt would incur.
Psychologically it comes down to personal preference, I personally avoid debt like the plague especially for such small sums of money.
If you do decide to invest it put it all into a whole market ETF or index fund as described in the OP. Retirement savings or not if you plan to leave it there for the long run (5+) you are best of doing that. If you foresee needing the money for anything else in the next couple of years investing might not be the best solution.
Man, do I ever regret not doing this when I started grad school in 2008.
I would say it depends on what you are going to school for and the job prospects that come with it. No one knows if the market will be up or down in 1.5 years time. In general it trends up, but it's hardly a longshot for it to be down over that short a period. So evaluate it on whether you would still be ok paying back those loans and covering your other expenses without taking your 10K investment out of the market.
I guess with only a 1.5 year headstart, I would probably lean toward advising against it. Wait until you've graduated and have a job secured, and you can make a more informed decision about whether to invest or pay off your loans at an accelerated pace. The opportunity cost of 1.5 years of market appreciation is probably not *that* high relative to the risk if you have trouble graduating or finding a job for whatever reason.
TheLostBigBoss
Banned
Computer Science major, I already have a couple of potential jobs lined up after I graduate, so I'm not overly concerned in that department.
Personally having this extra money means I can live pretty comfortably if I don't bother to really do much with it. I plan on taking out loans regardless of what I do with the money, its a nice safety barrier and allows me to actually do some stuff on a regular basis.
I still work part time at my co-op company, and I will most likely go back to full time once the semester ends. I can continue making a decent amount of money considering I live at home and don't have major monthly expenses. So lets say I invest that 10K today, realistically if I work full time from May=>August I'll have around another ~10K, not including the money I make part time now.
It just personally seems silly to not try and make some of this money make money. Sure, I could just bank it and pay for school out of hand, but based on how much school I have left and the amount it would cost, I don't see why I can't take in some loan debt for the short term.
One thing I'll mention is that some government loan programs might require you to sell your investments to get a loan. I know my friend had to, here in Ontario. So maybe check on how your loan situation is. And it is specifically investments, they don't seem to care if you have that much in the way in cash. The loans are interest free until 6 months after you graduate or get a job, so I suppose they know people do exactly this and want to discourage it. Only reason I paid mine off is because I took some courses over the summer while working and was technically a part-time student, and thus started accruing interest.
I was still able to get rebates for middle income families though, despite having more than enough invested to pay for the rest of school just because my parent's income is below a certain threshold. Meanwhile people who could actually really use them can't get them because their parents make too much. I just think it's lame for financial aid to assume people have support from their parents. Often they do, but covering everyone would cover the people in that edge case and wouldn't cost much more, and to the extent that it does cost more it could be paid for by raising taxes on the very people they worry so much about benefiting from the program unfairly. Anyway, this all belongs in the Canada PoliGAF thread, sorry.
I was still able to get rebates for middle income families though, despite having more than enough invested to pay for the rest of school just because my parent's income is below a certain threshold. Meanwhile people who could actually really use them can't get them because their parents make too much. I just think it's lame for financial aid to assume people have support from their parents. Often they do, but covering everyone would cover the people in that edge case and wouldn't cost much more, and to the extent that it does cost more it could be paid for by raising taxes on the very people they worry so much about benefiting from the program unfairly. Anyway, this all belongs in the Canada PoliGAF thread, sorry.
Arrogant Bastard
Banned
Looking for some advice because it is really past time that my wife and I start some type of retirement fund. We are both 35, teachers with access to a 403b (not really sure if I understand the benefits of setting this up with my employer) from what I understand they won't match anything it is just a payroll deduction.
My wife has about 22k from a previous job to roll over into something. We have about 2k that we put into savings each month, we are looking to invest about 1k-1.5k of that each month. We have no desire to stress about this so I don't want to have to mess with it each month, would very much like to just set it up and forget about it. We own both of our cars, have no credit card debt (pay it off every month), I have 25k in student loans 5k will be paid off in 3 years from my employer (I overpay each month so more goes to the premium pay $350 a month, $225 goes to the premium), we just bought a house last year 4.25 interest rate.
Would like to roll over the 22k and invest another 10k immediately, then invest another 1k each month from here on out.
What should we be looking at? This is all exceptionally brand new for us, only reason my wife has the 22k is her father set it up.
My wife has about 22k from a previous job to roll over into something. We have about 2k that we put into savings each month, we are looking to invest about 1k-1.5k of that each month. We have no desire to stress about this so I don't want to have to mess with it each month, would very much like to just set it up and forget about it. We own both of our cars, have no credit card debt (pay it off every month), I have 25k in student loans 5k will be paid off in 3 years from my employer (I overpay each month so more goes to the premium pay $350 a month, $225 goes to the premium), we just bought a house last year 4.25 interest rate.
Would like to roll over the 22k and invest another 10k immediately, then invest another 1k each month from here on out.
What should we be looking at? This is all exceptionally brand new for us, only reason my wife has the 22k is her father set it up.
Randolph Freelander
Member
My advice with the 22K she can move: Roll it over to Vanguard into the matching IRA type (if her contributions were pre-tax, that's a traditional IRA, if after-tax, that's a Roth IRA) and go into their target date fund closest to your anticipated retirement year (for example, a target 2050 fund). That's going to take the least amount of management from you, it's going to be low expense, and it's going to be broadly diversified and gradually shift into more conservative investments over the years. Then on your own time, you can educate yourself a bit more on financial matters and see if you want to take a more active role with your allocations, but in reality, you don't really need to.
As a matter of new retirement investing, go over your fund options and when available, prefer low cost index funds over active funds. You can post here to ask questions about your specific options and we can give more assistance then. If you do post, it helps to include not only the fund names but descriptions and even expense ratios.
hockeypuck
Member
If his employer doesn't offer contribution matching, wouldn't it be better to open a Roth IRA and max out that first, given the likelihood that this particular 403b is going to have poorer options?
Randolph Freelander
Member
Yes. The assumption here is that there is a match. If not, favor a personal IRA first.
Arrogant Bastard
Banned
Okay, that first part seems easy enough. I'm not sure if her contributions were pre/post tax but I'm sure we can contact them and find out.
The 403b offered allows us to invest with a wide range of vendors personally I would prefer to roll over and continue invest with the same company just for ease.
From the information it doesn't look we are 'allowed' to do a Roth 403b with our employer, if I'm going through the 403b.
I'm assuming it is best to open this through our employer in lieu of just saving money and investing it each month? So we should try to reduce our salary to match what we would be investing each month, correct?
Doesn't look like my employer supports a Roth IRA.
hockeypuck
Member
You open IRAs/Roth IRAs at the brokerage firms themselves, not through your employer. I opened an IRA at Vanguard last year, for example. Fidelity and Charles Schwab are other good examples I keep coming across, mainly because of access to cheap in-house index funds with no transaction fees.
Arrogant Bastard
Banned
Okay, so what is the purpose of the 403b? Is that basically an account that I can then invest into an IRA/Roth?
hockeypuck
Member
They are both considered retirement accounts, aka retirement vehicles. So many funny names in finance. With 401k or 403b, the employer sets aside a portion of your paycheck and deposits that into the 401k or 403b account, which is then used to buy hopefully low cost mutual funds where money can grow for retirement. That obviously decreases your take home pay, but guess what, you didn't have to pay any upfront taxes on the money deposited into your 403b. So you save on taxes that year. You can start withdrawing the money after age 59.5 or later. It's only then you start paying taxes on the money in the account. It's tax deferral. Your money in the 403b grew tax-free until you started withdrawing.
An IRA means Individual Retirement Account. Think of it like an independent retirement account completely separate from your employer. Less middlemen, more control for you. You use the money from your take-home pay to put money into the IRA. So that money was taxed before it got deposited into your bank account, right? If you then transfer that money into a traditional IRA, then you can deduct that amount from your taxable income the next time you do taxes. You pay taxes only when you withdraw the money out after it grows for decades. It grows tax-free, like the 403b.
A Roth IRA means that you're okay with the upfront tax hit when you deposit money into the IRA. You don't deduct it when you do taxes. It grows tax-free and you withdraw tax-free. Sounds pretty sweet, eh? So, whether you do a traditional IRA or Roth IRA will depend on how you project your tax rate now versus when you retire. For example, if you live in a state that doesn't have its own income tax but you think you'll retire to another state that does have an income tax, then doing a Roth IRA may be a great idea. Or, if you're currently in the 15% tax bracket but your career is projected to you retiring in the 25% tax bracket, then paying tax upfront can save you money. You're typically going to be paying Federal income tax.
Roth was the name of a dead Senator from Delware who sponsored this option. It's not an acronym.
So why have both a 403b and an IRA? Because many employers do matching with 401k or 403b. That's free money for you. But usually IRAs have better investing options. But you can only contribute $5500 a year per individual to an IRA. That's not enough. So, the common strategy that's recommended here has been:
1) contribute to 401k/403b up to match, get that free money. That money stays in the 403b, growing (hopefully growing).
2) contribute to IRA, max it out $5500. That money stays in the IRA, growing (hopefully growing).
3) if you still any left over to save, fill the rest of the 401k/403b bucket. That money stays in the 403b, growing (hopefu...)
This is the exact strategy from the first post of this thread, written in 2014 and last updated in June 2016. It's still relevant. I recommend you read through it. I myself didn't know what a 401k or a 403b, outside of commercials and advertisements, until last October.
In your case Step 1) above doesn't apply to you, since your non-benevolent employer doesn't match, hence my question to Randolph about filling the IRA bucket as the first step.
If you change jobs, you can keep the money in Job1 403b, move the money from your Job1 403b into your Job2 403b, or roll it over into your IRA (I believe that's separate from the $5500 annual limit). Just have to make sure there are no stupid fees.
Great thread! For those of you who are younger, take advantage of your youth and get started on investing early. I got a late start (started in my early 30s) and I definitely wish I would have been smarter in my 20s in terms of managing and saving money.
Specific to the thread, I have a couple questions. I currently contribute to my 403b at the max contribution that gives me a 100% match from my employer.
Now that I have most my debts, except student loans, taken care of, I'd like to increase the amount I invest.
1.) What is a good recommendation for the percent of gross income you should be investing?
2.) What's the advantage of starting an IRA vs contributing more (without a match) to my 403b? Also, any advice on Roth vs traditional IRA?
Thanks!
Specific to the thread, I have a couple questions. I currently contribute to my 403b at the max contribution that gives me a 100% match from my employer.
Now that I have most my debts, except student loans, taken care of, I'd like to increase the amount I invest.
1.) What is a good recommendation for the percent of gross income you should be investing?
2.) What's the advantage of starting an IRA vs contributing more (without a match) to my 403b? Also, any advice on Roth vs traditional IRA?
Thanks!
DeadlyVirus
Member
What do people here think of robo-advisors?
Given that this thread is very US-centric, I'm just going to quickly ask about recommendations for how much to allocate to savings. I'm graduating in a month and joining a company at 28000 SEK/2800 USD a month (not perfect conversion, but 10/1 makes the example easier).
I will be taxed roughly 700 and be left with 2100.
Out of the taxes, a large portion goes to retirement savings (18.5% of total salary, so roughly 500 out of the 700). On top of that my employer will add 5% of my base salary to a separate retirement saving, = 140.
640 per month in total that I cannot influence. How much would you add? I thought about putting away an extra 400, but since the total amount is already quite high I've gone back to thinking 200 is "enough" early on.
Another thing I read was a philosophy of taking 50% from the net of any bonuses or increases in pay going forward and adding it to retirement savings, which sounds like it could stack up quite quickly and therefore allow me to start on a lower amount initially.
I will be taxed roughly 700 and be left with 2100.
Out of the taxes, a large portion goes to retirement savings (18.5% of total salary, so roughly 500 out of the 700). On top of that my employer will add 5% of my base salary to a separate retirement saving, = 140.
640 per month in total that I cannot influence. How much would you add? I thought about putting away an extra 400, but since the total amount is already quite high I've gone back to thinking 200 is "enough" early on.
Another thing I read was a philosophy of taking 50% from the net of any bonuses or increases in pay going forward and adding it to retirement savings, which sounds like it could stack up quite quickly and therefore allow me to start on a lower amount initially.
inb4 "how do I move to Sweden"?
ClosingADoor
Member
Since you are just starting out and I take it early 20s, it actually make sense to put more in instead of less. Time in the market is very important, since we are talking about compound interest on your investment. So every dollar you put in now, is worth a lot more then what you put in later. So if you can, I'd put in that $400 or more if you can.
Don't forget to put together an emergency fund of a few months living expenses first though.
Question 1 is similar to cooloff's. There isn't a right answer. Some things will say try for x% or 3x your wealth at 40. There are so many variables that there is no stock answer. Will you own your home and have no monthly payment or renting or have some equity in your home but you've remortgaged a bunch and are still paying. All 3 of those people probably need different amounts in retirement funds. At what age do you want to retire? etc.
The answer to two is simply that IRAs tend to have more investing options and less fees. Some people have really great work retirement plans and that isn't the case but for most people they're better off being able to choose their investing broker and options.
So I'm about to take the plunge, but I have a few more questions I hope to clarify before it's settled. They all have to do with Vanguard mutual funds.
1) Admiral shares: are these purchases based on 10K in the account or 10K per fund? I assume it's the latter, but I'd want to be sure since I intend to start at that level (in total).
2) If a fund like VAGSX (LifeStrategy Growth) matches my intended balance of diversification pretty closely (80/20 stock/bond split, 60/40 US/International), is it advantageous to go all in on that versus assembling the same balance from individually owned funds like Total Market US, Total International, etc (the basic ones from the OP)?
3) If I were to purchase something like VAGSX, then change my mind about how aggressively I want to invest, are there costs involved with selling that fund and transitioning to the individually assembled balance (all within Vanguard)? I believe I understand that there are no fees for such transactions, but I am not sure.
1) Admiral shares: are these purchases based on 10K in the account or 10K per fund? I assume it's the latter, but I'd want to be sure since I intend to start at that level (in total).
2) If a fund like VAGSX (LifeStrategy Growth) matches my intended balance of diversification pretty closely (80/20 stock/bond split, 60/40 US/International), is it advantageous to go all in on that versus assembling the same balance from individually owned funds like Total Market US, Total International, etc (the basic ones from the OP)?
3) If I were to purchase something like VAGSX, then change my mind about how aggressively I want to invest, are there costs involved with selling that fund and transitioning to the individually assembled balance (all within Vanguard)? I believe I understand that there are no fees for such transactions, but I am not sure.
So I'm thinking about making a pretty big life change. It's in service of my dream of being mortgage free.
Am I crazy? I have a home which I love and could stay in for a while. The opportunist in me is telling me I can do more with my equity by exiting the housing market at what seems like a peak and save a ton of money by selling and sacrificing my lifestyle a bit.
In a few years I could have $500K+ and buy a decent home and live mortgage free, vs. the 22 years of mortgage payments I have left.
- Status: 31yo, $115K CDN income per year
- I bought my house 3 years ago for $400K, with $80K down. Today, this house is worth $650K+
- Carrying my house with mortgage/tax/utilities is about $2K a month
- I predict the housing market in my area to cool off, and potentially face a correction.
- I'm thinking about getting my equity out of the housing market, and putting into financial investments
- If I sell my house, I should have somewhere between $350-400K cash to invest with
- I have the option to live for free in a basement apartment (parents, but it's an actually separate apartment) for free for a few years. It would be huge downgrade, but I'm a single person in a 3 bedroom home, which is a bit of a waste
Am I crazy? I have a home which I love and could stay in for a while. The opportunist in me is telling me I can do more with my equity by exiting the housing market at what seems like a peak and save a ton of money by selling and sacrificing my lifestyle a bit.
In a few years I could have $500K+ and buy a decent home and live mortgage free, vs. the 22 years of mortgage payments I have left.
From a purely financial perspective, I think you would be crazy not to do this. Irrespective of whether other investments outperform the housing market in your area, you would be saving a lot of money and significantly diversifying your wealth by taking it out of a single asset.
Whether it is worth the lifestyle change is something you have to answer for yourself. Money is a means to an end, not an end unto itself.
ClosingADoor
Member
If you have $400.000 to invest, why not take $200.000 of that and buy a smaller place, and use the rest to invest in your future? Get a small studio or 1 bedroom place and already have that one mortgage free. If you move later on again, you could even rent it out and use that as some extra income that way.
You're right, I was trying to measure my expectation of the housing market against the potential returns from investments ex. what if it goes up by 6%, does that 6% on $650K mean more than lets say 8% return on the $350K I might invest? It's hard to be predictive on the housing market that's been defying any expectations and logic, but through selling I know I'll be doing well.
I was very against the idea at first, but it's starting to make the most sense to me. I can live anywhere and be relatively happy. I've got a girlfriend who is in complete support of me doing this, so that helps.
The housing market in the Toronto area has been on an insane growth track, so whatever I could get for $200K would be objectively less nice than the brand new and spacious basement apartment available to me for no cost.
Doesn't seem that crazy to me, 3 bedroom single family house is too large for a single person imo. Living for free sounds good but if you don't want to do that, I would consider looking at multifamilies as well. You could get multifamilies and live 'rent' free while renting out the other units. This of course depends on your market and whether you can find a deal and want to do the landlord thing.
Randolph Freelander
Member
1) Per fund.
2) If the single fund's diversification matches your strategy, then go with it.
3) Not sure if it applies to Vanguard (I use Fidelity), but some funds have short-term redemption fees if, for example, you hold it less than 90 days. Just look for policies related to that, but you shouldn't have other issues.
Randolph Freelander
Member
Just topped off my 2017 Roth IRA. Feels good.
On a day when the market is (presently) down. Feels better. (Stay down through EOD, please.)
On a day when the market is (presently) down. Feels better. (Stay down through EOD, please.)
anonymous_abc
Member
I just topped up my HSA for 2016 with after tax dollars.
How does that work then do I get a tax credit for that at the end of the year or now for 2016?
How does that work then do I get a tax credit for that at the end of the year or now for 2016?