What you call "luck" is actually "risk" and there are time-tested strategies to manage it, and build toward a successful retirement.
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How to Invest for Retirement
- Thread starter Piecake
- Start date
What you call "luck" is actually "risk" and there are time-tested strategies to manage it, and build toward a successful retirement.
Randolph Freelander
Member
Picking and choosing individual stocks? That's luck.
Picking the entire market? That's patience.
Patience is a little too strong
Investors need to apply patience in selecting their investments too. P/E ratios in Japan at the height of the bubble were in the 80~90 range. Although valuations are not effective at predicting returns in the short term, they are pretty good at predicting returns over 10 years (about 40% correlation). If you are a longterm investor, you ought to be strategically adjusting your allocation when the relative valuations of markets diverge. This does take patience, though. Overvalued markets will often continue outperforming in the short term.
http://www.rothira.com/roth-ira-limits
I think I'm in the donut hole here. Can I do the backdoor Roth if I'm in the "phase out" tier? And how do I know my contribution limits if they depend on income I'll make later in the year - I'm a contract worker so my income might go up or fall off. I can wait until 2018 starts but I'd rather contribute earlier.
I think I'm in the donut hole here. Can I do the backdoor Roth if I'm in the "phase out" tier? And how do I know my contribution limits if they depend on income I'll make later in the year - I'm a contract worker so my income might go up or fall off. I can wait until 2018 starts but I'd rather contribute earlier.
Income level is not a barrier to using the backdoor Roth. Do you have money in a non-Roth IRA? That is usually the complicating factor.
You don't. However the law gives you a remedy for the situation where you misjudge your income when making a contribution early in the year. You are allowed to reverse your contribution without any additional penalty beyond any normal taxes on growth that would have applied if the money was in a taxable account. You can also recharacterize the contribution between Roth and non-Roth with no tax implications (aside from whether you are allowed to claim the deduction at the end of the year).
STILLethal
Member
So lets say I have $10k in my WF savings account, just sitting there for no reason. What'd I do with it? Invest in index funds? I've seen the WF website offering a way to invest, so is that the best way to go through with this? How and what do I pick to invest in?
SonicXtreme
Member
in your situation i would just buy index of spy or DIA since you probably wanna invest it sooner than later, then you can let it sit for a while to learn exactly what you wanna do, but i'd do that just to get it doing something immediately and let you wait until the time is right to make another investment without being impatient
SecretMoblin
Member
Don't use Wells Fargo as a broker. It is easy to link your savings account with a more robust broker and transfer money. Brokers like Vanguard, Fidelity, Schwab, and even TD Ameritrade have been aggressively competing to provide better customer service, lower prices, and a range of commission-free options for non-professional investors.
Read the entire OP to get an idea of what to look for, and maybe supplement your research by looking into "three-fund" portfolios or "lazy portfolios". Those four brokers also have tools to help determine an allocation and steer you toward their products, but it's worth reading up and figuring out what you're comfortable with.
Read the entire OP to get an idea of what to look for, and maybe supplement your research by looking into "three-fund" portfolios or "lazy portfolios". Those four brokers also have tools to help determine an allocation and steer you toward their products, but it's worth reading up and figuring out what you're comfortable with.
Randolph Freelander
Member
Counter-argument: Using your bank as your broker can unlock perks for your normal banking and credit accounts. As long as the bank's brokerage isn't hitting you with unnecessary fees, then using them can be both convenient and moneywise.
Just do your research and weigh the plusses and minuses of using WellsTrade as your investing platform.
(Disclaimer: I work for Wells Fargo but do not bank with them. I use Fidelity for my Roth IRA, but I bank with Bank of America and use Merrill Lynch for taxable investing.)
SecretMoblin
Member
Ah, that's true.
I guess I'm just not aware of WF having the range of products that the others offer -- last time I checked their core large-cap index fund WFILX it had an expense ratio of over 40 basis points. But I admittedly don't know the platform, and if there are good incentives to having everything linked then it could definitely be an option.
I guess I'm just not aware of WF having the range of products that the others offer -- last time I checked their core large-cap index fund WFILX it had an expense ratio of over 40 basis points. But I admittedly don't know the platform, and if there are good incentives to having everything linked then it could definitely be an option.
Randolph Freelander
Member
I wouldn't use their mutual funds, certainly, and I don't use Merrill Lynch's funds in my own account. If you want mutual funds, go straight to the source of the good ones. But at a quick glance, Wells offers online trades at $5.95, and that's competitive. Invest in ETFs and the like (I only hold VTI in my ML account), and it's going to be comparable to using another platform for a typical, non-active investor.
STILLethal
Member
I'm planning on investing $10k 1-3 years through WF since their system seems simple and easy, would that be smart or should I be looking at longer term?
Congrats! Try not to look at it all the time like I do.
Screw that. Make a spreadsheet with charts! Charts are fucking awesome.
ZackieChan
Member
I just track it all in Personal Capital app
anonymous_abc
Member
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Randolph Freelander
Member
Is 1-3 years your horizon for needing the money or is 1-3 years all you want to think about but there's no pressing need?
If the former, then you want safer instruments such as money market accounts and bonds. Maybe a little stock, but not too much. If it's the latter, then something heavy on stock is appropriate if you have the appetite for risk. In either case, you can use Wells Fargo's WellsTrade platform if that's convenient for you, but if you're looking for something beyond stocks and ETFs (such as mutual funds), then I would say open an account with Vanguard as SecretMoblin suggested earlier. Their fund options are broader and carry lower fees.
Personally, I hold VTI in my taxable investing account. It's a total domestic stock market ETF, it's provided by Vanguard, but you don't need a Vanguard account to buy it. It trades as stock, so it's subject to the same commission as any other stock trade if using WellsTrade.
Domino Theory
Crystal Dynamics
This is the second time in a couple months Ally's raised their APY rate - it's now at 1.20% from 1.05%. Pretty sweet for a savings account if anyone's looking.
I purchased a vehicle two weeks ago for $35,000. I just sold my previous one yesterday for $23,500. The car was paid off so I have 100% of the funds. I plan to refinance with my credit union because I can get an APR of 2.25% (Currently 5.89%).
What is the best way to go about using this money from the sale? I was thinking of putting $20,000 towards the refinance to drastically lower my payments. I was also thinking of investing the $20,000 in bonds in my taxable account or something else that is low risk. I would then take money from it monthly to go towards the car payment.
I could also put it in my savings account, but that only generates 1.15%. I figure dumping it into the refinance loan would be better than my savings account since the APR is higher for the loan.
What do you guys think? Greatly appreciate any input.
What is the best way to go about using this money from the sale? I was thinking of putting $20,000 towards the refinance to drastically lower my payments. I was also thinking of investing the $20,000 in bonds in my taxable account or something else that is low risk. I would then take money from it monthly to go towards the car payment.
I could also put it in my savings account, but that only generates 1.15%. I figure dumping it into the refinance loan would be better than my savings account since the APR is higher for the loan.
What do you guys think? Greatly appreciate any input.
cubicle47b
Member
I log my finances and look at the expected vs. reality chart every week. It helps keep me motivated.
Amory
Member
So I didnt know there were income limits restricting the yearly $5,500 Roth IRA contribution ($133k cap). I was planning on starting to make a commitment to putting that away every year, but I guess I cant anyway. Does anyone know if thats just salary income or if its total income from all sources?
If I cant contribute to a Roth IRA after all, should I be doing a Roth 401k instead and just stop doing pre-tax contributions?
If I cant contribute to a Roth IRA after all, should I be doing a Roth 401k instead and just stop doing pre-tax contributions?
Randolph Freelander
Member
2.25%, invest. If you were stuck at 5.89%, put it towards the loan.
If investing, I wouldn't put it in bonds, unless you have some other financial need coming up. The returns on that will barely outpace your interest, if they do at all. And your plan to use that money monthly to make your car payment means you'll be subjecting yourself to short term capital gains, which further eats into your returns. (If you need the money to make your payments, I would also suggest just putting it towards the principal up front.)
There's no guarantee with stocks, either, particularly not over the short term, but if you're playing the long game, that's where to go, again, provided you do not need the money in the short term.
Randolph Freelander
Member
That's correct, it's based on MAGI, which means it's going to be less than your actual income, though not necessarily as low as the AGI you report.
If you still come out above the threshold, there's still the backdoor Roth. (Contributing to a traditional IRA, then converting that account to Roth and paying taxes on any gains, which if you do it immediately, there will be none or very little.)
Amory
Member
If I won't reach the yearly max for my 401k anyway, does it make a difference between doing that (contrubuting to IRA, converting to Roth) and just straight up contrubuting to a Roth 401k instead?
Randolph Freelander
Member
The benefit of the Roth IRA is that you have more options and presumably lesser expenses. Though if your 401K plan is great, that's awesome (mine is, too... awesome fund options, very low expense, the benefit of working for a very large bank, I suppose).
Also, if your income is high enough that you're up against or over the Roth IRA threshold, then you could stand to benefit by doing a traditional 401K and taking the tax savings and investing those. (At the Roth cutoff, the marginal rate is 28%, and doing a traditional 401K would be a bet that your future average tax rate would be less than that.)
Amory
Member
Idk what good vs bad funds are, really. I'm way too ignorant about this kind of stuff. My options all look pretty generic, tbh. I usually just do index funds, 67% US, 33% international.
I don't think the plan is anything exceptional, but they do match 7% if I put in 6%. So thats nice.
I think I will do as you suggested, contribute pre tax and skim off the extra to invest myself.
Randolph Freelander
Member
The benefit of doing traditional (pre-tax) contributions to your 401K is that also reduces your MAGI, which could then open up the Roth IRA without having to do the backdoor conversion!
As for good vs. bad funds, index funds are great, provided that they are broad and have low expenses (unfortunately, some providers seem to miss the point on that). Also, if your 401K has administrative fees on top of fund fees, you'll want to give priority to outside accounts after you have secured your full employer match. Just keep those ideas in mind.
Thank you. It seems like putting the majority of it towards the loan makes more sense in my situation because of the short term capital gains. I would be able to make the monthly payments without using those funds, but it would drastically lower the amount of expendable income I have each month.
Would you say a savings account earning 1.15% is better than putting it all towards the principal from the start? I would still be withdrawing from it monthly.
Randolph Freelander
Member
Earn 1.15 (and pay taxes on it) to pay 2.25? No thanks. If you need to use these funds to make your finances work and/or more comfortable, then just apply it to the principal. At most, keep some of it in savings just as an emergency fund, assuming you don't already have that covered (3 months expenses, some recommend as high as 6, I don't personally bother with either and just accept the risk of investing).
Its hard not to lol. I think my fund was active that day so in the past 2 days I made 20 bucks. Its interesting to see the money grow.
I should really check it like onces a year or something and itll seem like a bigger jump.
I already have 6 months of expenses in savings which is already more than enough like you mentioned. I think I will just apply it to the principal. Seems to make more sense for my situation. If I didn't need these funds to pay off the loan comfortably, I would definitely invest it. Thanks again for your input.
Barkley's Justice
Member
Not so much investing for retirement, but any suggestions on investing for kids?
Right now I have a 529. That's great assuming the kid goes to school. But is there a "safer" way to invest that is a bit more flexible on how the money can ultimately be spent?
I was looking at UGMAs at Vanguard which sound similar to 529 but can be used for other things outside of school:
https://personal.vanguard.com/us/whatweoffer/college/vanguardugmautma
However, this article states UGMAs can affect financial aid:
http://www.morningstar.com/advisor/t/52251337/don-t-let-an-ugma-leave-you-saying-ugh.htm
Ultimately, I'm looking for an account that will generate interest but can be a place for family members to contribute to as well. Would a classic savings account at a bank be the proper fit?
Right now I have a 529. That's great assuming the kid goes to school. But is there a "safer" way to invest that is a bit more flexible on how the money can ultimately be spent?
I was looking at UGMAs at Vanguard which sound similar to 529 but can be used for other things outside of school:
https://personal.vanguard.com/us/whatweoffer/college/vanguardugmautma
However, this article states UGMAs can affect financial aid:
http://www.morningstar.com/advisor/t/52251337/don-t-let-an-ugma-leave-you-saying-ugh.htm
Ultimately, I'm looking for an account that will generate interest but can be a place for family members to contribute to as well. Would a classic savings account at a bank be the proper fit?
I went through this same debate when my wife and I started our 529's several years ago. This was ultimately the tipping factor in favor of 529's. From your first link, regarding UGMA's:
529's are owned and controlled by you. Should your kids decide not to go to college, you can re-purpose the funds by paying taxes, plus a 10% penalty.
But you can't get contributions from a UGMA back, and if they don't go to college, they will take legal possession of the UGMA when they hit the age of majority, which varies by state but is 21 here.
That lack of control over the funds is why we settled on a 529. We judged the downside, should the kids not go to post-high school education, to be fairly tame. (taxes plus a 10% penalty) and worth it for the trade off in lower state taxes now.
Randolph Freelander
Member
Yes, particularly if your friend would be motivated to invest in a target date fund. If your friend wants totally hands off, a target fund is the type to hold and Vanguard is where to hold it.
I use Fidelity for my Roth, which is simple enough and has the low cost index funds to match Vanguard, but if I were into target funds, I would switch.
We ended up going the UMGA route.
For my wife and I, we felt that the higher education landscape could potentially change in 15-18 years where it may no longer may be necessary (or affordable at current increases). As such, we wanted to give our child the flexibility to pursue something they were interested in even if that didn't mean higher education. No, it doesn't provide us control over the funds beyond the age of majority but if they do decide to still pursue higher education we can supplement with funds invested by other means.
Makes sense. I should add a footnote that my wife and I kind of split the difference, and we have some money set aside in a regular investment account (called the kids "fun fund") - just money we'll give them straight up after high school. Its about 20/80 split with the 529.
Barkley's Justice
Member
What would a regular investment account be like? Total n00b here.
Standard, taxable brokerage account. The money is our name, just earmarked for them.
ThanksVision
Member
need some advice and info. so I worked full time at my last place and contributed to a target retirement 401(k). only worked there for a couple months so I have just under $5000 in it. now I'm on to a new job and have a new 401(k) set up with fidelity. i don't have any other saving funds outside of these two things.
so in a couple weeks my vanguard savings will automatically rollover to an Ascensus IRA if I don't do anything. otherwise I can move the money myself beforehand. the thing is, I'm not sure what/how I should do i.e. let it rollover or take all the money out and start a new IRA with vanguard or something...
so in a couple weeks my vanguard savings will automatically rollover to an Ascensus IRA if I don't do anything. otherwise I can move the money myself beforehand. the thing is, I'm not sure what/how I should do i.e. let it rollover or take all the money out and start a new IRA with vanguard or something...
Thanks for the reply and info! Appreciate it.
Wellington
BAAAALLLINNN'
I just took a punch in the gut today, my immediate boss revealed that she put in her resignation and her last day is Thursday. She isn't going to work anywhere, she is retiring at age 48. She will be leaving to Sri Lanka for a month before heading to Jamaica where she is buying a house to live with her partner.
Couple things that helped her - she has a partner who is already retired with a full pension and that pension is enough for both of them. She has never had any interest in kids. She sold her house here in Long Island. Geographic arbitrage by moving down to Jamaica.
She said that what really started putting her over the top is she signed up for Motley Fool community or whatever and she has most of her money in stocks (not index funds). Fucking crazy.
I legit was so stunned that I couldn't really think of many questions and I also didn't want to keep peppering her with them for fear of seeming like a complete creeper. I asked the obvious ones, when did you start, what was your savings rate, what is your asset allocation, what are you doing to draw down your funds, etc.
Makes me really want to cut down to the bone with regards to my spending, that was her number one tip - live within your means.
To that end, before even hearing this I have been riding my bike to work now that the oppressive summer months are over - it is a boatload of fun, healthy, and obviously much cheaper. Wish I had done this before.
Man I am still in shock, and now completely swamped. I had a convo with our collective boss regarding the 4% rule literally the day before she informed him.
Couple things that helped her - she has a partner who is already retired with a full pension and that pension is enough for both of them. She has never had any interest in kids. She sold her house here in Long Island. Geographic arbitrage by moving down to Jamaica.
She said that what really started putting her over the top is she signed up for Motley Fool community or whatever and she has most of her money in stocks (not index funds). Fucking crazy.
I legit was so stunned that I couldn't really think of many questions and I also didn't want to keep peppering her with them for fear of seeming like a complete creeper. I asked the obvious ones, when did you start, what was your savings rate, what is your asset allocation, what are you doing to draw down your funds, etc.
Makes me really want to cut down to the bone with regards to my spending, that was her number one tip - live within your means.
To that end, before even hearing this I have been riding my bike to work now that the oppressive summer months are over - it is a boatload of fun, healthy, and obviously much cheaper. Wish I had done this before.
Man I am still in shock, and now completely swamped. I had a convo with our collective boss regarding the 4% rule literally the day before she informed him.
Original Famous Ray
Member
I don't make enough nor am I educated enough to get individual stocks and stuff. I do have Vanguard's Total Stock Market ETF as my sole index for my taxable for now but I can't imagine testing the stock waters for individual stuff. I would LOVE to retire early but unless I save and be cheap like a madman and find a lady who has a similar mindset it probably won't happen...maybe... lol
Man..retiring pre-50 would be sweet. At least be financially independent anyways at that age so I can do fun type of work without worry.
Man..retiring pre-50 would be sweet. At least be financially independent anyways at that age so I can do fun type of work without worry.
demosthenes
Member
4% rule?
ZackieChan
Member
I believe it's the rule that you should be able to live off of 4% of your savings, annually.
I used this calculator: http://www.fourpercentrule.com
I could probably retire at 50 if I went balls out. Probably gonna do 55, though I'll never fully retire. I'll probably switch to mediation or something as a part time career.
Yeah, the idea is that over almost all retirement-length historical time periods (including those with major crashes / recessions), the average rate of return on a mixed stock & bond portfolio is at least 4% (real). Ergo, if your living expenses are 4% or less of your total investment saving, you can retire now, because you will be able to live off of your current investments indefinitely.
4% is considered a conservative number, such that you don't really need to worry about what happens if the economy is bad.
However, I'm not sure I personally see the rule as being all that useful for early retirement. Future cost-of-living is very difficult to predict, owing mostly to uncertainty about one's health and the associated health care costs, but also due to unknowns around the social safety net, tax rates, and other things. You can look at your current savings and say "4% of that would currently give me $X per year to live on". But its very difficult to know if X is going to be enough 30 years from now.
Wellington
BAAAALLLINNN'
Speaking of 4% rule, Mad Fientist recently did an interview with the father of the 4% rule, Michael Kitces. Awesome podcast episode if you want to nerd out.
http://www.madfientist.com/michael-kitces-interview/
http://www.madfientist.com/michael-kitces-interview/