Support NeoGAF

[hiryu64]

This thread has been fantastic for helping me get off the ground, so thanks to everyone in here who's been gracious enough to share their knowledge! I've been investing into a Roth IRA for a little less than a month, and I'm pretty happy with the progress I've made so far. Here's my current financial situation:

• 401k and Roth IRA through Fidelity
• Roth IRA: about 1k in VTI, about 2.5k in FSTMX
• 401k: I've been contributing 6% pre-tax since September 2016 (employer matches 50% of first 6%), but I upped it to 12% earlier this month. Money is in FFFHX
• 1k in liquid savings, credit line of 10k (<5% utilization, but I'm not afraid to go higher if I need to)
• 60k annual gross income, 11.5k in student loans at 6.8% (IBR payments of 0 until next year), auto loan currently sitting at a little below 8k at 1.49% (paying about 200 monthly), other monthly living expenses hover around 1500 (generous estimate)

Current plan is to max the Roth IRA with another 2k into FSTMX over the next month. I won't be getting anywhere near the 401k annual cap, but I want to get as much as I comfortably can, and I'll dial my contribution down if I feel like I don't have enough breathing room. Anyway, I've been reading some of the posts here and doing some reading on my own and have some questions on where to go next.

• Originally, I was going to just save the leftovers in my bank account, but I guess I could open a brokerage account and just keep throwing money into that? I figure I could keep like 3k on hand and invest the rest, either in companies I've been following or in total market funds.
• I initially bought into VTI, but it looks like ITOT would be a better ETF to invest in (commission-free through Fidelity, lower expense ratio). The only reason I didn't is because I didn't know about ITOT beforehand. Anyway, the question here is, is there a functional difference between a total market mutual fund and its equivalent ETF? Would I benefit from moving my VTI shares into FSTMX? I have a week or two before I can sell the VTI shares without incurring the short-term trading fee.
• FSTMX appears to track the Dow, but I noticed that there are some other funds for the other two markets -- specifically, FNCMX for the Nasdaq and FUSEX for the S&P 500. Is there an advantage of branching out into these two as opposed to FSTMX? And what's up with FNCMX's high expense ratio?
• The three-fund portfolio has been mentioned a few times and appears to be a widely-favored strategy. Rather than throw everything into FSTMX, I could toss some stuff into a total international fund like FSIIX (though it looks like Fidelity rolled out with a new total international index fund: FTIGX?) and a total bond fund like FBIDX or FTBFX. Wondering what the difference between FSIIX versus FTIGX and FBIDX versus FTBFX outside of the expense ratio and other obvious metrics are. I'd probably go with the former of each pair in any case.
• Related to the above, some people have mentioned managing one's own 401k rather than using managed retirement funds such as FFFHX. What are the disadvantages, if any, to this approach? If I'm able to manage my 401k contributions on my own, I'd consider a three-fund portfolio over the managed fund.
• This is more of a personal finance question as opposed to a retirement question, but they're related enough. I posted my income and outstanding student and auto debt because I've heard a few conflicting opinions on how to attack it. My current plan is to just pay the minimums and focus on saving/investing, since I figure that whatever interest I accrue would wash out with the investment returns (I have not calculated whether this is true; it's just my intuition speaking). But some say that it's wise to pay down high-interest debt (i.e. student debt) aggressively while investing. Given these figures, how would you guys recommend I balance my loan payments with my investments?

I think that's all the questions I have for now. If you guys have any other advice or suggested research material, I'm all ears. Thanks again for your help!

 

[Moppet13]

Can someone explain to me why index ETFs don't experience large price fluctuation as a result of speculative trading? I understand that they have a true value based on the underlying fund, but wouldn't their price still rise superset from that if they are a popular purchase?

Only explanation I can think of is maybe fund manager floods the market with new shares when prices go up?

There are times where an etf will stray from the value of its underlining assets. This will happen when an etf is about to get delisted for example. If anything is at risk of having to go to the over the counter market it will lose value simply because of that.

 

[tokkun]

Originally, I was going to just save the leftovers in my bank account, but I guess I could open a brokerage account and just keep throwing money into that? I figure I could keep like 3k on hand and invest the rest, either in companies I've been following or in total market funds.

Seems fine to me. I have said a few times in this thread why I don't think people should keep more than a few thousand in cash unless they are saving it for some specific near-term purchase.

I initially bought into VTI, but it looks like ITOT would be a better ETF to invest in (commission-free through Fidelity, lower expense ratio). The only reason I didn't is because I didn't know about ITOT beforehand. Anyway, the question here is, is there a functional difference between a total market mutual fund and its equivalent ETF? Would I benefit from moving my VTI shares into FSTMX? I have a week or two before I can sell the VTI shares without incurring the short-term trading fee.

The differences are pretty minor. Personally I prefer mutual funds over equivalent ETFs because they make buying and selling a little simpler. No worries about bid/ask spreads or whether to use a market or limit order.

This list is a pretty good summary:
http://www.etf.com/sections/index-investor-corner/vanguard’s-mutual-funds-better-its-etfs

FSTMX appears to track the Dow, but I noticed that there are some other funds for the other two markets -- specifically, FNCMX for the Nasdaq and FUSEX for the S&P 500. Is there an advantage of branching out into these two as opposed to FSTMX? And what's up with FNCMX's high expense ratio?

I think you are probably operating under a subtle misconception here - FSTMX tracks the Dow Jones Total Stock Market Index (DWCF). That is not the same as the more famous (and synonymous) Dow Jones index, the Dow Jones Industrial Average (DJIA).

The FSTMX is sufficient on its own. You don't need to add a NASDAQ or S&P 500 fund unless you want to tilt toward the tech industry or large cap stocks respectively.

The three-fund portfolio has been mentioned a few times and appears to be a widely-favored strategy. Rather than throw everything into FSTMX, I could toss some stuff into a total international fund like FSIIX (though it looks like Fidelity rolled out with a new total international index fund: FTIGX?) and a total bond fund like FBIDX or FTBFX. Wondering what the difference between FSIIX versus FTIGX and FBIDX versus FTBFX outside of the expense ratio and other obvious metrics are. I'd probably go with the former of each pair in any case.

The international funds follow different indices, with FTIGX being a total world index and FSIIX being limited to developed markets. If you look at FTIGX's top 10 holdings, it includes companies like Samsung, Tencent, TSMC, and Alibaba, which don't appear in FSIIX. FTIGX includes 5X as many stocks as FSIIX.

If you are targeting a 2050 retirement, it is questionable whether you need to hold any bonds at all right now. If you do, it should probably be no more than 10% of your holdings, so I wouldn't worry over much about minor differences in funds.

Related to the above, some people have mentioned managing one's own 401k rather than using managed retirement funds such as FFFHX. What are the disadvantages, if any, to this approach? If I'm able to manage my 401k contributions on my own, I'd consider a three-fund portfolio over the managed fund.

Is FFFHX really the best you can do with Fidelity? A 77bp expense ratio? Maybe the version in your 401K is cheaper.

Anyway the advantage of rolling your own portfolio would be:
- Typically you can get a slightly lower expense ratio with Vanguard funds. Seems like with Fidelity it may be a lot lower?
- You can take advantage of tax-efficient asset placement if you have both tax-advantaged and taxable investment accounts of comparable size. For instance, you might opt to put as much of your international investments as you can in the taxable account, because this allows you to take a foreign tax deduction on your federal income taxes.

The disadvantages are related to the fact that you must take a hands-on approach to managing the funds, and this opens you up to making behavioral errors, which are common among investors can be very costly.
- You need to make your own choices about the appropriate amounts of domestic vs international.
- You have to rebalance manually.
- You have to transition from stocks to bonds manually.
- Every time you log in to manage your account manually, you are going to feel tempted to make some change that is probably a mistake.
- You reduce decision fatigue (https://www.fastcompany.com/3026265...suit-obamas-presidential-productivity-secrets)

This is more of a personal finance question as opposed to a retirement question, but they're related enough. I posted my income and outstanding student and auto debt because I've heard a few conflicting opinions on how to attack it. My current plan is to just pay the minimums and focus on saving/investing, since I figure that whatever interest I accrue would wash out with the investment returns (I have not calculated whether this is true; it's just my intuition speaking). But some say that it's wise to pay down high-interest debt (i.e. student debt) aggressively while investing. Given these figures, how would you guys recommend I balance my loan payments with my investments?

I would probably pay off the student loans at 6.8% before investing - unless you are getting a 401K match.

 

[BraXzy]

I don't know if I understand the difference. Can you link an example of each fund you're considering investing into?

Could also be referring to this

"With income units, any income is paid as cash. This can be withdrawn, reinvested or simply held on your account. With accumulation units any income is retained within the fund; the number of units remains the same but the price of each unit increases by the amount of income generated within the fund. Generally accumulation units offer a slightly more efficient way to reinvest income, although many investors will choose to hold income units and reinvest the income to buy extra units."

http://www.hl.co.uk/funds/fund-disc...gal-and-general-european-index-class-c-income
http://www.hl.co.uk/funds/fund-disc...d-general-european-index-class-c-accumulation

Fund is the same just different how the income is paid.

That's the one. I use Hargreaves here in the UK.

 

[Zunja]

I'm starting to have enough extra cash to get into some of this. I'll probably have about 1000 to start with in the next month or so. I've been trying to read but don't have a ton of time yet so it's going slow.

I was thinking about using an app like betterment that I've heard really good things about. I'm 27 and my new job is going to bring mw into a lot of money so I'm trying to set all this stuff up.

 

[Icelandic_Jazz]

I'm in a position where I have a good chunk of money, roughly 15k, to either invest or pay down debt, but have some confusing scenarios that I'm hoping someone can help me with.

Our family decided to roll my brother's student loans and my student loans into this one HELOC to remove the loans with high interest rates (we went down from 7-9% down to 3.5%).

Our family discussed the idea of me paying off my brother's portion of the debt and have him essentially take out a loan to me under the assumption that the compound interest would be less than having both of our debts in one big HELOC. This also makes calculating our payments less complicated. Does this make sense?

Does a HELOC's interest being calculated daily make a large difference compared to interest being calculated monthly? Trying to wrap my head around how it compounds the interest.

My options are basically:
1. Pay down my portion of the debt
2. Pay off my brother's portion and have him pay it back to me at the same interest rate
3. Invest in taxable investments (Vanguard Index funds). I've got my 401k and Roth maxed out.

I have much more student loans than my brother, but I can pay my debt off much faster. Any thoughts are super appreciated.

 

[tokkun]

I'm in a position where I have a good chunk of money, roughly 15k, to either invest or pay down debt, but have some confusing scenarios that I'm hoping someone can help me with.

Our family decided to roll my brother's student loans and my student loans into this one HELOC to remove the loans with high interest rates (we went down from 7-9% down to 3.5%).

Our family discussed the idea of me paying off my brother's portion of the debt and have him essentially take out a loan to me under the assumption that the compound interest would be less than having both of our debts in one big HELOC. This also makes calculating our payments less complicated. Does this make sense?

Does a HELOC's interest being calculated daily make a large difference compared to interest being calculated monthly? Trying to wrap my head around how it compounds the interest.

My options are basically:
1. Pay down my portion of the debt
2. Pay off my brother's portion and have him pay it back to me at the same interest rate
3. Invest in taxable investments (Vanguard Index funds). I've got my 401k and Roth maxed out.

I have much more student loans than my brother, but I can pay my debt off much faster. Any thoughts are super appreciated.

To be blunt, option 2 sounds like a terrible idea. Having friends or family owe you money is a fraught situation to be in, and you are talking doing it to avoid a tiny amount of additional interest.

3.5% compounded daily is equivalent to 3.562% APR.
3.5% compounded monthly is equivalent to 3.557% APR.

We're talking thousandths of a percentage point differences.

 

[Icelandic_Jazz]

To be blunt, option 2 sounds like a terrible idea. Having friends or family owe you money is a fraught situation to be in, and you are talking doing it to avoid a tiny amount of additional interest.

3.5% compounded daily is equivalent to 3.562% APR.
3.5% compounded monthly is equivalent to 3.557% APR.

We're talking thousandths of a percentage point differences.

Which is honestly what I thought, but was getting contradicting information from my family. My main concern now is making sure we are paying the correct amount of principle and interest on each of our portions, so his interest doesn't leak into my payments and vice versa.

 

[hiryu64]

Thanks for the words of wisdom, tokkun! I wasn't aware of the distinction between DWCF and DJIA, so that definitely cleared up a lot of confusion.

Yeah, Fidelity's managed retirement funds are kind of crap compared to Vanguard's. I took a look at what other funds my employer offers, and while FSTVX isn't there (I wonder if I could ask HR about adding it to the plan...), I did a 40/20/40 split into FUSEX, FSEVX, and FSIVX respectively. These were three of the only four index funds offered by my company--the fourth was FSITX. I'm intrigued by your comments on international investments, though. Please correct me if I'm wrong, but are you saying that I would benefit from moving my FSIVX investments into a Roth 401k while leaving the domestic funds in a traditional plan? If so, I'll have to look further into whether that's a feasible option for me.

As for your comments regarding the student loan, is there any particular reason why you would sooner pay it off before investing?

 

[Y2Kev]

I was reading some material earlier and found that mutual funds can charge up to an 8.5% load. I was like WAT

 

[aronnov reborn]

I was reading some material earlier and found that mutual funds can charge up to an 8.5% load. I was like WAT

Better be one hell of a fund.

 

[tokkun]

Please correct me if I'm wrong, but are you saying that I would benefit from moving my FSIVX investments into a Roth 401k while leaving the domestic funds in a traditional plan?

No, that won't help. In order to claim the tax credit, your international investments must be in a non-tax-advantaged account (i.e. a normal brokerage account). It doesn't work for funds held in your IRA or 401K or HSA, regardless of whether they are Roth or traditional. If you don't have to file a 1099-DIV for the account, it doesn't apply.

 

[ferr]

I was reading some material earlier and found that mutual funds can charge up to an 8.5% load. I was like WAT

probably has a staggered reduction based on initial investment. look at this one https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/858268105 starts out at 5.75% load for min $2,500 but staggers down to 0% for anything over $1m.

not to say that having that much load on min investment isn't weird, though. what's the point? also that example fund i linked looks awful at a glance.

 

[Smiley90]

I've been working my new job for a year now and realized our pension plan was opt-in. And I never opted in. Whoops.

It's pretty generous:

6.5% contribution mandatory on my end, 8.2% contribution on their end. If I leave the company/cash out early, I get my contribution x 1.5 back (at least, there's some weird formula going on for an alternative calculation of cashout-value, but it's guaranteed to be the higher of the two. so at least 1.5x). Not in cash but in a transfer to my RRSP (the Canadian version of a tax-deferred/deductible retirement savings account)

so at worst it's a 3.25% "rise" or more accurately a guaranteed 50% total ROI on those 6.5% of my paycheque.

 

[Domino Theory]

I've got a Roth IRA fund with Vanguard and started it with $1k (figured it's better to start with something for retirement than nothing even though I don't make enough to regularly contribute).

It's now at 1100. Could I take the 100 out then reinvest it or should I just leave it alone and contribute whenever I can?

 

[demosthenes]

I've got a Roth IRA fund with Vanguard and started it with $1k (figured it's better to start with something for retirement than nothing even though I don't make enough to regularly contribute).

It's now at 1100. Could I take the 100 out then reinvest it or should I just leave it alone and contribute whenever I can?

What's at 1100? The market value of the fund? Leave it be.

 

[Husker86]

I've got a Roth IRA fund with Vanguard and started it with $1k (figured it's better to start with something for retirement than nothing even though I don't make enough to regularly contribute).

It's now at 1100. Could I take the 100 out then reinvest it or should I just leave it alone and contribute whenever I can?

Is the $100 in cash in your IRA or is it just from the increased value of the fund? If cash, reinvest within your IRA, if it's just from increased value of existing investment then you have nothing to reinvest, it's already invested.

 

[Domino Theory]

What's at 1100? The market value of the fund? Leave it be.

Is the $100 in cash in your IRA or is it just from the increased value of the fund? If cash, reinvest within your IRA, if it's just from increased value of existing investment then you have nothing to reinvest, it's already invested.

It's from increased market value, but I didn't know it got reinvested. I have capital gains and dividends set to reinvest, but I've only ever seen one dividend reinvestment of $20 looking at the transaction history. (VFFVX)

 

[Randolph Freelander]

It's from increased market value, but I didn't know it got reinvested. I have capital gains and dividends set to reinvest, but I've only ever seen one dividend reinvested of $20 looking at the transaction history. (VFFVX)

Increased market value isn't "reinvested," it's the appreciated value of what is already invested. You had a thing worth $1000 that's now worth $1100.

 

[Smiley90]

It's from increased market value, but I didn't know it got reinvested. I have capital gains and dividends set to reinvest, but I've only ever seen one dividend reinvestment of $20 looking at the transaction history. (VFFVX)

Market value is the increase in stock price.... you never had that money "in hand". Eg you bought it for 1000, it got more expensive and is now 1100. Nowhere in the process did you have more cash or more shares - just the shares you have got more valuable. It didnt get reinvested, it never left.

 

[AndyD]

Any feedback on using TD Ameritrade vs. Vanguard?

 

[Splash Wave]

Can anyone give me a lesson in how to set up a 401k/Retirement fund, but explained in a way suitable for a complete moron? I know *nothing* about this shit.

All I want is the simplest/safest thing in which to invest savings. As of right now, I just throw money into a basic savings account, which feels like a complete waste.

 

[Natetan]

Can anyone give me a lesson in how to set up a 401k/Retirement fund, but explained in a way suitable for a complete moron? I know *nothing* about this shit.

All I want is the simplest/safest thing in which to invest savings. As of right now, I just throw money into a basic savings account, which feels like a complete waste.

It took me over a year to finally get my vanguard account setup and actually start investing my money. It's a scary thing to do because your money feels safer in a bank account than investing it and potentially losing it all.

Now that I've finally done it I'm kicking my self for not doing it earlier. I see how much I've missed out on over the years and especially the last 6 months or so.

Just go to vanguard website and open up an account. The. You'll transfer money from your bank acct etc to your vanguard account. From there you can buy funds. A good one to start with is the exchange traded fund VTI. Enter thatstock ticker , choose how many stocks you want and execute the order. Maybe just buy a few at first to see how it does and get comfortable with the idea of investing. I have all my stocks on the stock menu of my iPhone, you can check once a day to see how it's doing or just leave it alone for A few weeks to see how it's doing. Then once you get more comfortable with investing, you can place more money in the account. You can explore other etf or even stocks or bonds.

I guess the positive market has made a big difference, but I'm much. Ore comfortable investing now than I was a few months ago.

 

[Splash Wave]

It took me over a year to finally get my vanguard account setup and actually start investing my money. It's a scary thing to do because your money feels safer in a bank account than investing it and potentially losing it all.

Now that I've finally done it I'm kicking my self for not doing it earlier. I see how much I've missed out on over the years and especially the last 6 months or so.

Just go to vanguard website and open up an account. The. You'll transfer money from your bank acct etc to your vanguard account. From there you can buy funds. A good one to start with is the exchange traded fund VTI. Enter thatstock ticker , choose how many stocks you want and execute the order. Maybe just buy a few at first to see how it does and get comfortable with the idea of investing. I have all my stocks on the stock menu of my iPhone, you can check once a day to see how it's doing or just leave it alone for A few weeks to see how it's doing. Then once you get more comfortable with investing, you can place more money in the account. You can explore other etf or even stocks or bonds.

I guess the positive market has made a big difference, but I'm much. Ore comfortable investing now than I was a few months ago.

And you'd suggest this route over something like a government bond? Thanks for the response, by the way.
edit: Index Fund? Roth IRA?

 

[SecretMoblin]

And you'd suggest this route over something like a government bond? Thanks for the response, by the way.
edit: Index Fund? Roth IRA?

Need more info (as much as you're comfortable with), especially regarding age, current income situation, how risky you want to be, etc.


You can open an IRA at any number of banks or brokers. Several types of account (savings, money market account, a Certificate of Deposit [CD]) at any reputable bank will be FDIC insured up to $250k, meaning you can't "lose" that money. Interest rates are typically low, especially for brick-and-mortar banks, and you're basically accepting much more conservative, low- to no-risk growth for the safety and liquidity of that money.

Most retirement investment advice instead suggests opening an IRA with a broker (several also operate banking services) and investing your fund in the market, with a mixture of stocks and bonds in domestic and international markets for a balance of risky and conservative investments. Most brokers have tools that can help determine what level of risk you are comfortable with and suggest how to invest your money based on your risk tolerance. This money is not insured and you are not guaranteed to make money in the long term, but decades of statistics and science suggests you'll most likely do better over time than holing your money in a savings account.

If your employer offers retirement plans, look into that before doing anything else.

 

[Natetan]

And you'd suggest this route over something like a government bond? Thanks for the response, by the way.
edit: Index Fund? Roth IRA?

I'm not in the us so I don't have access to the Roth IRA

The vti I recommended to you is an index fund.

You should do what you're comfortable with. If you are young, maybe you don't need bond investments yet, but it's better than sitting ina bank account.

 

[RumblingRosco]

-

 

[Splash Wave]

Need more info (as much as you're comfortable with), especially regarding age, current income situation, how risky you want to be, etc.


You can open an IRA at any number of banks or brokers. Several types of account (savings, money market account, a Certificate of Deposit [CD]) at any reputable bank will be FDIC insured up to $250k, meaning you can't "lose" that money. Interest rates are typically low, especially for brick-and-mortar banks, and you're basically accepting much more conservative, low- to no-risk growth for the safety and liquidity of that money.

Most retirement investment advice instead suggests opening an IRA with a broker (several also operate banking services) and investing your fund in the market, with a mixture of stocks and bonds in domestic and international markets for a balance of risky and conservative investments. Most brokers have tools that can help determine what level of risk you are comfortable with and suggest how to invest your money based on your risk tolerance. This money is not insured and you are not guaranteed to make money in the long term, but decades of statistics and science suggests you'll most likely do better over time than holing your money in a savings account.

If your employer offers retirement plans, look into that before doing anything else.

What do you want to do with the money you are saving? Is it for retirement? Is it for a house down payment in 2-5 years? Is it for books for college in 6 months? The most important question to ask, IMO, before you do anything with investing, is deciding what your goal is with that money.

Info!

I'm 28 and make ~52k a year. It's nothing much (though I am due for a raise), but I have been able to save some money since getting my current job. Broadly speaking, I want to start preparing for retirement, and also to start saving for a house. My girlfriend/life partner/future wife would ideally like to buy something within the next five years, if possible (she has better savings than I do).

I don't have any debt whatsoever, so it feels like a waste not to put my extra money into something productive. As of right now, I very frequently spend my money on random bullshit that isn't helping me in any way whatsoever.

My employers don't offer any kind of 401k (though I asked yesterday, and it sounds like they might do something this year).

I guess the next step would be to walk into either Chase or Schwab and sit down with someone, but I want to have as much information as possible before doing so.

 

[demosthenes]

Info!

I'm 28 and make ~52k a year. It's nothing much (though I am due for a raise), but I have been able to save some money since getting my current job. Broadly speaking, I want to start preparing for retirement, and also to start saving for a house. My girlfriend/life partner/future wife would ideally like to buy something within the next five years, if possible (she has better savings than I do).

I don't have any debt whatsoever, so it feels like a waste not to put my extra money into something productive. As of right now, I very frequently spend my money on random bullshit that isn't helping me in any way whatsoever.

My employers don't offer any kind of 401k (though I asked yesterday, and it sounds like they might do something this year).

I guess the next step would be to walk into either Chase or Schwab and sit down with someone, but I want to have as much information as possible before doing so.

No debt is fantastic.

No 401? IRA it is for retirement.

If you have $5,500 right now, move it into a roth IRA account. Set up something with your bank to move over $458/month to a savings account. $458 * 12 = $5,500 yearly contribution limit.

I'd set something like a Vanguard account to invest into some funds like VTSMX or you could go into a bond fund if you wanted lower risk for starting to save towards your house. Talk with your SO, you should be doing this together (if you'll be married). If your house is 5 years away then I'd imagine you could start with some riskier items now and moving it to less risky in a few years.

If the start doing a 401k, I would contribute up to the max of what they offer, continue with the IRA and see where you stand. The nice thing about a 401k is it takes the money away from you before you can touch it so it helps it not buying stuff that you don't need :0

 

[SecretMoblin]

I guess the next step would be to walk into either Chase or Schwab and sit down with someone, but I want to have as much information as possible before doing so.

A good rule of thumb is to save between 15-20% of your pre-tax income for retirement. At your income you could comfortably max your tax-advantaged retirement account (IRA) each year, which for you is almost certainly $5,500 if you choose to open a Roth IRA (as it is for most people). The IRS has a fairly short writeup about contribution limits.

Here is a great little article about the differences between a "Traditional" IRA and a Roth IRA. The most major immediate and major difference is that with a Traditional IRA you can deduct your contribution when you file taxes for this year but pay taxes on the money you take out when you retire, while Roth IRA contributions come from your pocket and are not taxed when you withdraw money later.

Past the $5,500 limit, you can do what you want with the remaining money -- put it in a separate fund to invest in the market alongside your IRA, put it in a bank account, etc. I'm not an expert but I'm certain most retirement advisors would suggest NOT opening an IRA at a bank like Chase, which has a relatively weak brokerage arm. Charles Schwab is fine and most of the costs for low-intensity investors, which I assume you would consider yourself, are on par with industry averages. You have a long time until retirement, it's worth taking a greater degree of risk right now and gradually shifting your money into "safer" low-risk investments, like bonds, as you age.


Having zero debt at 28 is seriously great and it suggests you're at least somewhat responsible with money. If you haven't already, make a budget. You can find out how much of your discretionary spending you're using for random bullshit (your words) and redirect that towards something you and your partner can be proud of in a few years.

 

[Ace Harding]

Are passive-only investors here not concerned with the next correction coming, and getting hurt because your investments are market cap weighted?

I still keep 40-50% of my retirement savings in index funds but moved a bunch to actively managed funds in anticipation of a down cycle in the next few years.

Active managers have been getting their asses handed to them net of fees in recent years but that is going to change (as it has in the past).

When talking about diversification I think folks would be wise to be diversified in active/passive as well.

 

[ClosingADoor]

Are passive-only investors here not concerned with the next correction coming, and getting hurt because your investments are market cap weighted?

I still keep 40-50% of my retirement savings in index funds but moved a bunch to actively managed funds in anticipation of a down cycle in the next few years.

Active managers have been getting their asses handed to them net of fees in recent years but that is going to change (as it has in the past).

When talking about diversification I think folks would be wise to be diversified in active/passive as well.

No, because you are keeping buying through that dip. So you also enjoy the added value when it recovers.

Actively managed funds don't outperform the market, since nobody can predict a correction. The added cost is simply not worth it and can eat thousands of dollars from your returns over the long term.

 

[milanbaros]

Are passive-only investors here not concerned with the next correction coming, and getting hurt because your investments are market cap weighted?

I still keep 40-50% of my retirement savings in index funds but moved a bunch to actively managed funds in anticipation of a down cycle in the next few years.

Active managers have been getting their asses handed to them net of fees in recent years but that is going to change (as it has in the past).

When talking about diversification I think folks would be wise to be diversified in active/passive as well.

No, because retirement saving should be a monthly/quarterly process. The next downturn is when I'll be purchasing the shares which will ultimately provide me a great return (better than the peak just before the next dip anyway) 30+ years from now.

You accumulate far more units during market lows than highs.

 

[Ace Harding]

My thinking is that there are markets where active managers tend to beat indices, and vice versa. Because I can't predict when the market will change, I've decided to diversify so I'm not only holding index funds. I do have a feeling we'll start seeing a lot more volatility soon, and that is when we'll start to see managers begin beating indices more consistently again.

 

[ClosingADoor]

My thinking is that there are markets where active managers tend to beat indices, and vice versa. Because I can't predict when the market will change, I've decided to diversify so I'm not only holding index funds. I do have a feeling we'll start seeing a lot more volatility soon, and that is when we'll start to see managers begin beating indices more consistently again.

This is short term thinking though. When do you know that market volatility will go away again and remove your money from the active funds?

What you are doing is exactly like you say: you have a feeling. That is not looking at it objectively and will cause you to make mistakes.

Do you have any numbers that show active managers beat passive funds in certain environments, and that we are now in such an environment? And that you know how long that will last?

 

[GhaleonEB]

Are passive-only investors here not concerned with the next correction coming, and getting hurt because your investments are market cap weighted?

I still keep 40-50% of my retirement savings in index funds but moved a bunch to actively managed funds in anticipation of a down cycle in the next few years.

Active managers have been getting their asses handed to them net of fees in recent years but that is going to change (as it has in the past).

When talking about diversification I think folks would be wise to be diversified in active/passive as well.

1) To the bold - no it's not. You will do worse in any given market with managed funds, over time. There are decades of data to back this up. I started out in stocks and active funds and did far worse across the years I was in them. Now I'm in 100% index funds and am doing better than had I stayed or tried to pick and choose "winning" funds. I would be retiring 4-5 years earlier had I spent my first decade of retirement investing in index funds instead of active. (I calculated it when I did the cut over.)

I don't care about the next market crash. It will revert to the mean - both on the upside and the downside. And that long term growth is what I care about, not the next crash. I want the market.

 

[Splash Wave]

No debt is fantastic.

No 401? IRA it is for retirement.

If you have $5,500 right now, move it into a roth IRA account. Set up something with your bank to move over $458/month to a savings account. $458 * 12 = $5,500 yearly contribution limit.

I'd set something like a Vanguard account to invest into some funds like VTSMX or you could go into a bond fund if you wanted lower risk for starting to save towards your house. Talk with your SO, you should be doing this together (if you'll be married). If your house is 5 years away then I'd imagine you could start with some riskier items now and moving it to less risky in a few years.

If the start doing a 401k, I would contribute up to the max of what they offer, continue with the IRA and see where you stand. The nice thing about a 401k is it takes the money away from you before you can touch it so it helps it not buying stuff that you don't need :0

Is setting up a Roth IRA account as simple as walking into my bank and saying, "I'd like to set up a Roth IRA account"? Is there any choice on my part involved aside from allocating my money? I have $5,500 to contribute right now if that's what you're recommending--but it sounds like the money is instead taken out at monthly intervals?

A good rule of thumb is to save between 15-20% of your pre-tax income for retirement. At your income you could comfortably max your tax-advantaged retirement account (IRA) each year, which for you is almost certainly $5,500 if you choose to open a Roth IRA (as it is for most people). The IRS has a fairly short writeup about contribution limits.

Here is a great little article about the differences between a "Traditional" IRA and a Roth IRA. The most major immediate and major difference is that with a Traditional IRA you can deduct your contribution when you file taxes for this year but pay taxes on the money you take out when you retire, while Roth IRA contributions come from your pocket and are not taxed when you withdraw money later.

Past the $5,500 limit, you can do what you want with the remaining money -- put it in a separate fund to invest in the market alongside your IRA, put it in a bank account, etc. I'm not an expert but I'm certain most retirement advisors would suggest NOT opening an IRA at a bank like Chase, which has a relatively weak brokerage arm. Charles Schwab is fine and most of the costs for low-intensity investors, which I assume you would consider yourself, are on par with industry averages. You have a long time until retirement, it's worth taking a greater degree of risk right now and gradually shifting your money into "safer" low-risk investments, like bonds, as you age.

Having zero debt at 28 is seriously great and it suggests you're at least somewhat responsible with money. If you haven't already, make a budget. You can find out how much of your discretionary spending you're using for random bullshit (your words) and redirect that towards something you and your partner can be proud of in a few years.

If I'm understanding the distinction correctly, the Roth IRA is taxed up front? I'd prefer not to be taxed later on, whatever the answer. In any case, I'll go with Schwab when it comes to actually setting it up.

In regard to budgeting, what do you all recommend? I've tallied up my monthly expenses vs. my income, but I'm wondering how best to manage the rest. I've signed up for Mint and I don't particularly like it--it's a little too automatic and comprehensive to the point of being not super useful for my purposes.

What would either of you do with $7000 to work with in a similar position to my own? I haven't had this decent-ish paying job for long, so that's all I have in my "responsible" savings account (I have a couple grand in my checking account and another couple in a travel fund). Right now, I'm really itching to divide that number up this month.

 

[tokkun]

My thinking is that there are markets where active managers tend to beat indices, and vice versa. Because I can't predict when the market will change, I've decided to diversify so I'm not only holding index funds. I do have a feeling we'll start seeing a lot more volatility soon, and that is when we'll start to see managers begin beating indices more consistently again.

You probably think that because that is the lie story active managers keep trying to sell their customers once people noticed that they habitually underperformed during bull markets. "Just wait for a bear market, and active funds will win."

And yet...

Warren Buffet recently won his bet, with passive index doing 3X better than actively managed hedge funds from 2006 to 2016:
http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/

And you may recall there was a once-in-a-lifetime stock market crash and huge recession during that period. Now if active management still got its clock cleaned with that, under what possible scenario would I expect them to actually win over the course of my much longer retirement horizon?

 

[PflargBlarg]

My thinking is that there are markets where active managers tend to beat indices, and vice versa. Because I can't predict when the market will change, I've decided to diversify so I'm not only holding index funds. I do have a feeling we'll start seeing a lot more volatility soon, and that is when we'll start to see managers begin beating indices more consistently again.

No, don't do this. You are almost guaranteed to fail in any attempt to time the market.

If you can actually tell me, right here, what the market is where active managers beat indices and why that market is going to occur soon (now?) I will give you my blessing. Otherwise, you're "diversifying" into higher fees and ruining your returns.

 

[SecretMoblin]

Is setting up a Roth IRA account as simple as walking into my bank and saying, "I'd like to set up a Roth IRA account"? Is there any choice on my part involved aside from allocating my money? I have $5,500 to contribute right now if that's what you're recommending--but it sounds like the money is instead taken out at monthly intervals?



If I'm understanding the distinction correctly, the Roth IRA is taxed up front? I'd prefer not to be taxed later on, whatever the answer. In any case, I'll go with Schwab when it comes to actually setting it up.

In regard to budgeting, what do you all recommend? I've tallied up my monthly expenses vs. my income, but I'm wondering how best to manage the rest. I've signed up for Mint and I don't particularly like it--it's a little too automatic and comprehensive to the point of being not super useful for my purposes.

What would either of you do with $7000 to work with in a similar position to my own? I haven't had this decent-ish paying job for long, so that's all I have in my "responsible" savings account (I have a couple grand in my checking account and another couple in a travel fund). Right now, I'm really itching to divide that number up this month.

Regarding your first question -- yes, it really is as simple as walking into a bank, or going to the website of a broker (Vanguard, Charles Schwab, etc.), providing some basic information including your name and Social Security number, and transferring money into the account. I helped a friend open a Roth at Vanguard (online) a few weeks ago and the process took about 8 minutes total, including depositing the maximum contribution of $5500. You can set it up to automatically withdraw money at monthly or quarterly intervals from another account, which is similarly easy (if from a checking account, for example, just providing a routing and account number is enough).

The Roth is taxed "up-front" in the sense that you've already been taxed on the money. If it's in a savings account, that means you've already paid taxes through payroll taxes and taxes withheld on your paycheck, and is not deducted when you do your taxes for this year. You won't be taxed for depositing money into the Roth account and won't be taxed on anything you take from it in the future. With a traditional IRA, you can claim that $5500 as a deduction when you do your taxes at the end of the year, which will lower this year's tax bill. But when you later withdraw the money from that account, it will be taxed as you receive it.

My budgeting is old-school spreadsheet use so I'm probably not the best person to handle that, but I know folks on GAF have said that the software "You Need A Budget" has worked very well for them. The most important thing is knowing where your money is, trimming the fat, and accepting a less wasteful lifestyle now for a life that is magnitudes more comfortable for you and your family in the future.

With $7k and no retirement fund, I would first make sure I had an emergency fund with a few months' worth of salary in it. If that was good, I would go to Vanguard or Schwab, open a Roth IRA, transfer the maximum from my bank's checking or savings account, wait for the money to clear, and use their tools (both companies have them) to invest that money in a simple diversified portfolio of indexes. Others can certainly disagree but that was basically my situation several years ago and I'm happy I made it.

For the record I'm with Charles Schwab and like it just fine, but competition has been absolutely splendid for reducing costs, improving customer service, and making life easier for wary folks looking to set up a future across the board.

 

[Natetan]

I have a basic question.

Will my stock and etf investments be taxed even if I don't sell them? Do I have to declare stock investments on my taxes even if they have no dividends?

 

[Cyan]

I have a basic question.

Will my stock and etf investments be taxed even if I don't sell them? Do I have to declare stock investments on my taxes even if they have no dividends?

Your broker should send you one or more 1099s at the end of the year, which will give you everything you need. You don't have to declare stock investments, but you'll have to report dividends, (realized) gains, etc. You won't be taxed just for owning stocks.

 

[Soapbox Killer]

Have a bunch of kids and hope one makes it big. That's what I m doing.

 

[therealist]

What are the rules on capital losses? How much loss can I continue to carry over each year and is there a time limit before they expire?

 

[tokkun]

What are the rules on capital losses? How much loss can I continue to carry over each year and is there a time limit before they expire?

The answer to both is 'unlimited'.

You can only deduct up to $3K/year on your taxes, though. So one large loss can last a long time.

 

[hockeypuck]

Is there any reason why one should hold onto an unrealized short term loss and make it a realized long term loss (as opposed to making it a realized short term loss)? I know the taxation benefits of a long term capital gain versus a short term, but I haven't been able to find anything that compares any advantages, if any, of long term capital loss versus short term.

 

[tokkun]

Is there any reason why one should hold onto an unrealized short term loss and make it a realized long term loss (as opposed to making it a realized short term loss)? I know the taxation benefits of a long term capital gain versus a short term, but I haven't been able to find anything that compares any advantages, if any, of long term capital loss versus short term.

If you happen to also have both long- and short-term capital gains in the same year and their sum is larger than the loss, then short-term losses are better, because they are applied to offset short-term gains first, whereas long-term losses offset long-term gains first.

I don't think there is any scenario where long-term losses are better, all other things being equal, but a person might still delay realizing a loss for other reasons, like avoiding a wash sale or because they anticipate having a short-term gain they want to offset in the next tax year.

 

[RumblingRosco]

-

 

[demosthenes]

Is setting up a Roth IRA account as simple as walking into my bank and saying, "I'd like to set up a Roth IRA account"? Is there any choice on my part involved aside from allocating my money? I have $5,500 to contribute right now if that's what you're recommending--but it sounds like the money is instead taken out at monthly intervals?

If I'm understanding the distinction correctly, the Roth IRA is taxed up front? I'd prefer not to be taxed later on, whatever the answer. In any case, I'll go with Schwab when it comes to actually setting it up.

In regard to budgeting, what do you all recommend? I've tallied up my monthly expenses vs. my income, but I'm wondering how best to manage the rest. I've signed up for Mint and I don't particularly like it--it's a little too automatic and comprehensive to the point of being not super useful for my purposes.

What would either of you do with $7000 to work with in a similar position to my own? I haven't had this decent-ish paying job for long, so that's all I have in my "responsible" savings account (I have a couple grand in my checking account and another couple in a travel fund). Right now, I'm really itching to divide that number up this month.

Some banks might not do items like Roth head. Depends, if they do they'll move young their investment side, you wouldn't do this with like a teller.

You can find your ira $5,500 a year, whenever you want. I fund mine on 1/1/xx. To make sure I have enough every year on January 1, I transfer $458 from a checking account to a savings account at my bank. On 1/1 I transfer that 5,500 to my scottrade account and incest it into my funds in my ira.

 

[tokkun]

I've had a situation for a while now where a stock I owned (before I started going full mutual funds) has lost all value. Like, 100% lost and delisted. I have this stock through Vanguard's brokerage services. Is it possible that I can write-off this loss in some fashion? There's no way to sell the shares to my knowledge as a realized loss, so I'm not sure what can be done.

No experience there, but Google says this: http://www.bankrate.com/finance/taxes/writing-off-a-worthless-stock.aspx