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How to Invest for Retirement
- Thread starter Piecake
- Start date
Yeah that makes sense, thanks.
PflargBlarg
Member
Yeah, generally speaking the lowest Canadian discount brokerage commissions are 9.95/9.99. You can go lower by making dozens of trades per quarter but that's more than a bit counterproductive.
The other option is Questrade which has 1 cent/share with a minimum of 4.95 to a max of 9.95. They also offer no buy commission on ETFs, which is pretty good. I know the reviews of their interface aren't the greatest, but mostly I'm just lazy and have gotten used to iTrade so I don't want to switch. Just thinking about the hassle of filling out forms and mailing them around annoys me.
Any help with Roth IRA allocation guidance?
About me:
I'm aiming to invest almost exclusively in Vanguard ETFs (or as similar as possible) with a tiny portion towards thematic ETFs (speculating).
From what I've read, a stocks/bonds allocation for someone in my age range should be between 80/20 and 90/10. Would a 100/0 allocation be reasonable if I am able to handle the volatility? My sights are set for many years down the line.
I've been assuming a 90/10 stocks-to-bonds allocation and roughly worked this out:
Stocks (Domestic 70%)
- 40% Large Cap
- 20% Mid Cap
- 10% Small Cap
Stocks (International 15%)
- 10% Developed Markets
- 5% Emerging Markets
Stocks (Specialty/Thematic 5%)
- 5% Thematic ETF
Bonds (10%)
- 5% Not sure
- 5% Not sure
My main questions are basically: Am I on the right track or completely uneven? And can I go to 100% stocks with no bonds in the short and medium-terms?
About me:
I'm aiming to invest almost exclusively in Vanguard ETFs (or as similar as possible) with a tiny portion towards thematic ETFs (speculating).
From what I've read, a stocks/bonds allocation for someone in my age range should be between 80/20 and 90/10. Would a 100/0 allocation be reasonable if I am able to handle the volatility? My sights are set for many years down the line.
I've been assuming a 90/10 stocks-to-bonds allocation and roughly worked this out:
Stocks (Domestic 70%)
- 40% Large Cap
- 20% Mid Cap
- 10% Small Cap
Stocks (International 15%)
- 10% Developed Markets
- 5% Emerging Markets
Stocks (Specialty/Thematic 5%)
- 5% Thematic ETF
Bonds (10%)
- 5% Not sure
- 5% Not sure
My main questions are basically: Am I on the right track or completely uneven? And can I go to 100% stocks with no bonds in the short and medium-terms?
Only tangentially related to Retirement, but I have a question:
My wife and I are in our early 30s. We just bought a new house and got a 20 year mortgage, which I hope to pay off much sooner.
Additionally, we have two kids, and we intend to pay for their college (currently via 529 plans funded monthly). The children are 3 years old and 1 month old.
Will paying the mortgage off before they apply for colleges totally kill any chances of them getting financial aid (since our debt will be effectively zero)?
Thanks in advance...if this is too off-topic, apologies.
My wife and I are in our early 30s. We just bought a new house and got a 20 year mortgage, which I hope to pay off much sooner.
Additionally, we have two kids, and we intend to pay for their college (currently via 529 plans funded monthly). The children are 3 years old and 1 month old.
Will paying the mortgage off before they apply for colleges totally kill any chances of them getting financial aid (since our debt will be effectively zero)?
Thanks in advance...if this is too off-topic, apologies.
anonymous_abc
Member
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demosthenes
Member
Not off topic! I can't speak specifically on FAFSA and whatnot but I have to imagine if you sat down in excel and calculated out the interest you'd save by paying your mortgage faster would probably outweigh the tuition assistance lost.
Thanks for the response. I expect that as well, but I'm not even sure how colleges approach this stuff now...let alone in 15-18 years.
demosthenes
Member
I think that's key. 18 years is a long way off. Don't count on something you can't control. You can pay off your mortgage in < 20 years and save for your kids college? Do what you can control.
- 100% stocks is reasonable. Obviously no guarantee it will beat an 80 / 20 allocation, but it is certainly reasonable. It mostly comes down to how able you are to leave your allocations alone in the face of a big bear market. It is easy for anyone to think that they are good at handling volatility if they started investing after 2009, when we've been in an extremely long bull market.
I try to practice what I preach in this thread, and have 100% of my 401K in a Vanguard Target Date fund, which ends up giving me a 10% bond allocation. If I were micromanaging, I would probably go with a smaller allocation, but I think the advantages of holding a fund that prevents me from micromanaging outweigh that.
- Your allocation seems fine to me. Like FliX, I have more international than you do, although holding international stock in a tax-advantaged account isn't so optimal since you don't get to claim the foreign tax credit on them. For whatever reason, I feel better about holding a large international allocation as a hedge against the US economy than I do about holding a large non-stock allocation as a hedge against the world economy.
The main piece of advice I would give you is to be careful about your "specialty / thematic" category. I see this as a source of behavioral risk. Basically, I believe that whenever a person makes specialty bets, there is a risk that if the bet beats the rest of their portfolio that they will be tempted to allocate more money toward the bets. Take some steps to mitigate this risk - for instance sit down and write out a set of rules you plan to follow for rebalancing your allocation
DarthMasta
Member
Anything wrong with just buying something like iShares Core MSCI World ETF?
Should be diverse enough, and good for someone with limited knowledge, no?
Should be diverse enough, and good for someone with limited knowledge, no?
Thanks! This is where I'm at as well.
anonymous_abc
Member
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Anyone have experience with leveraging lower return, high dividend funds to pay off their mortgage faster? My advisor suggested it, saying the returns would still outpace inflation, and putting all of the dividends into the mortgage automatically would be gravy on top of our monthly payments.
FAFSA is dependent on income, not debt. When applying my parents had to send in their tax returns and at no point was a credit check into their debt was done.
But what happens to your funds if the economy crashes again?
Oh that's good to know...thanks!
I'd plan to put around 20% of my money in these funds, with most staying in index funds.
the point where my wife and I are in our careers, financial aid is going to be out the window with my kids. We have a college fund stocked and loaded with today's prices for the both of them. It takes a big load off my shoulders that I can enjoy my later years without working to the bone to pay for school.
even a few hundred towards principle of your mortgage every month will bring down your note by years.
Agreed. I hope and expect to fully fund their college tuitions.
Thanks. Just making sure there wasn't something glaring that I overlooked with that strategy
it's probably cheaper and easier to write the check than to throw that money into a fund, pay a fee, take out the money, pay a fee, etc. I pay an extra $400 towards principle every month except in birthday months and christmas.
RumblingRosco
Member
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My advisor quoted me at $50K a year (tuition only) for a NYS public school in 2035...so WAY less than $500K for 4 years.
SomewhatGroovy
Banned
I'm not paying for my kids' college. Their asses better study. HARD!
anonymous_abc
Member
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demosthenes
Member
They could be in a different state that doesn't have SUNY.
And 50k a year in 2035, wow. Glad I finished in 2009 haha.
But yeah, 500k seems ridiculous.
ClosingADoor
Member
For 500k you might as well just move to Germany and have your kids go to college for free there and move back after.
DarthMasta
Member
SomewhatGroovy
Banned
I have two friends who moved their families to Germany to do so. DAAD , a scholarship program for international students, works wonders.
I think I read that German Universities are either giving out pretty sweet deals for English speaking students or allowing them to study for free due to lack of enrollment in Germany.
So you might not even have to move there. Just your kid would
http://www.bbc.com/news/magazine-32821678
Apparently its free if this is still a thing
Worth noting the article and your quote both emphasize private schools. Public colleges are high but less eye-popping:
We currently put $100 a month into our kids' 529, and will do so through college as well. Right now they'll have enough to cover 3/4 of their tuition for a four year degree, projecting the growth rates in tuition out. Not everything, but it should allow they to avoid the crushing debt load many are getting stuck with.
RumblingRosco
Member
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demosthenes
Member
SUNY UB is $22,000 everything included right now, a little higher than I thought it would be but still pretty good, and not as large as a difference than I thought it might be to your example but that's as you said b/c of your 500k number, ha.
I tend to a be a little suspicious of this kind of advice generally. I assume this is a mutual fund? Make sure to look at the expense ratio vs a Vanguard dividend fund, and if there are any additional fees (e.g. a front-end or back-end load) bail out and drop your advisor.
SomewhatGroovy
Banned
There's good cause to do this and people pay advisors for strategies, not products. Please don't rush to this "drop your advisor" shtick that's has remained prevalent here for yrs meow.
Bumrush:
1. What kind of loan do you have on your home? Interest rate? Fixed? How many years? Most importantly, what's your EMI? How much equity do you have? Is this your forever home?
2. How much in dividends is your fund paying out? How frequently?
hendersonhank
Member
Fidelity charges $75 to buy Vanguard index funds.
There are good Fidelity equivalents for every Vanguard fund from what I've seen. These have 0 transaction fees.
If you're using Vanguard, don't buy Fidelity. If you're using Fidelity, don't buy Vanguard.
It's not a "shtick." If the advisor is recommending strategies that help you, great. If they're recommending a product that they personally benefit from, obviously you should bail.
He's actually a solid advisor that has recommended many things over the years that directly equate to less commissions / business for him. As such, I've recommended family and friends to him so his overall portfolio has grown substantially.
Regarding this suggestion, it's in the infant stages now. We're sitting on too much cash and I reached out for him to help with ideas - both standard index fund type stuff and more out of the box solutions. We haven't even had the discussion around which particular funds he advises for this suggestion though, and I will pass along when we do.
In regards to #1, Private, through a bank, Fixed 20-year mortgage at 3.625%. Our EMI (with tax and insurance) is < 30% of monthly take home pay and yes this is our forever home (although having a vacation home would be nice down the line).
In regards to #2, I'm really not sure yet...as stated, it's more in the conceptual stages. I'll be meeting with him soon to discuss some possibilities.
Your basic strategy is sound. The allocation is up for debate. Personally I think you need to up the international significantly.
Bonds or not is almost a personal preference, I have some but have no interest in increasing that.
For reference my allocation
Thanks for these posts! Very helpful!
Inflation is around 1.9% right now, so that is about a 1.7% real interest rate you're paying, disregarding any potential tax advantage of paying it down slower to maximize mortgage interest credits. So, it is certainly realistic for you to beat that in stocks over the long term.
Now, the question of why you would try to do it with high-dividend stocks is more of a mystery to me. There is nothing particularly safe about dividend stocks compared to normal stocks. Their value can drop just as precipitously as any other stock, and they can cut their dividend if they choose (and many do during recessions). And since dividends are taxed as normal income, those stocks are comparatively less attractive unless you have a tax advantage.
SomewhatGroovy
Banned
Bum,
Without a hard number to quantify what dividends you'll be seeing , how frequently and whether they'll push you to a higher tax bracket (you already pay enough in taxes that are not being invested or used to pay down many other things) and negate any good intentions of "saving" you money, I would have your advisor crunch all these numbers hard using a financial planning tool he likely has available to him/her. It may be a good idea, but various factors are at play here. Don't get hung up on percentages but get hung up on raw numbers.
Regardless, If it were me, I would hold off on this strategy for a few quarters until you have a solid idea of what dividends from your portfolio look like and what this will do to your tax situation before assessing if this furthers your goals or ironically hinders it for the time being. Generally, this strategy works great to help you build equity which only happens IF the dividends paid out , collectively across all your investments, are at the very least higher than your EMI, but the rate at which you can now pay off your mortgage may land you at a higher bracket. If it doesn't...Great! These are the different scenarios which need to be looked at.
The thing about equity though, it's only useful if you intend to sell the home at some point and look at your home as an investment (that is to say, buy low/sell high) or want to take a home equity lone down the line for whatever reason. If this is your forever home, the equity does nothing for you, does it? If you'll not be using real estate as an active investment, then using dividends to pay it down faster does you no good unless there are other reasons why you need equity or why you need to pay off a home fast. Your rate on the loan is locked in and your dividends can, instead, be used to exceed that rate in your portfolio.
The mortgage is a guaranteed return with no loss of principal (knock on wood). Treat it as a safe and value play and your investment portfolio as a growth play. As long you max out whatever contributions you can to your growth play, have your emergency fund in order, then i would not consider it. If you are doing these things, and have the dividend income to spare...AND if its over EMI, and its tax sensitive, then an accelerated plan to pay the mortgage down would not hurt. Don't look at your mortgage as debt, which I think you are.
This is the counter advice I needed, thank you. The theory with the dividend stocks is that I would continue to make my monthly mortgage payments and every single penny of dividend income would go to further paying off the mortgage. In other words, I wouldn't be making additional mortgage payments with my salary, I'd be making them with dividends. BUT, if it's more advantageous to just make an extra payment a year and continue with index funds, I will certainly do that instead.
Man, I should have been asking questions in here years ago. Thanks for the (excellent) response.
My thinking around paying down the mortgage has always been "why not". After maxing out my 401K, the mortgage + taxes + insurance makes up < 30% of our take home. Besides funding colleges, I figured the next best course of action was to get completely debt free in my early 50s.
If you are risk-averse you should make the extra mortgage payment.
If you are not risk-averse you should take the money and buy more of a normal broad stock index fund (not specifically a dividend fund).
It sounds like the dividend plan is a way of playing mind games with yourself. You would be taking a slightly less good (due to taxes) version of the risky path while trying to trick your brain into thinking you are taking the non-risky path.
ClosingADoor
Member
Dividends are just shifting value from the stock to your wallet. When they are paid, the stock price drops down by the same amount. If your plan is to use part of your investment income to pay off your mortgage sooner, then you might as well just sell a part of your portfolio from time to time to do that. Of course, the return on that might be higher then your mortgage interest.
Yeah...I think my biggest problem right now is not doing A OR B (i.e. I leave too much excess money in checking and savings). My goal for 2017 is to increase regular monthly funding of my portfolio via index funds and make one extra mortgage payment.
PflargBlarg
Member
Mostly agree but just want to clarify on this section that you don't want "the tax tail to wag the investing dog". You can't claim foreign tax credits but they're still growing tax free. You definitely need to do actual calculations to see what ends up giving you more money in the end.