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[dbztrk]

Hey guys, I have a 401b plan that I contribute to. However, I don't have the faintest idea about how how to allocate the funds. I suck at investment.

Can anyone tell me what the best allocation would be? I've listed my current allocation below.

Guaranteed
TIAA Traditional - 40%
Equities
CREF Stock - 20%
CREF Global Equities 10%
CREF Growth 10%
CREF Equity Index -10%
TIAA Access International Equity Fund T4
TIAA Access Growth & Income Fund T4
TIAA Access Large-Cap Value Fund T4
TIAA Access Social Choice Equity Fund T4
TIAA Access Mid-Cap Growth Fund T4
TIAA Access Mid-Cap Value Fund T4
TIAA Access Small-Cap Equity Fund T4
TIAA Access Equity Index Fund T4
TIAA Access Small-Cap Blend Index Fund T4
TIAA Access Real Estate Securities Fund T4
TIAA Access Large-Cap Growth Fund T4
Real Estate
TIAA Real Estate - 10%
Fixed Income
CREF Bond Market
CREF Inflation-Linked Bond
TIAA Access Bond Plus Fund T4
Money Market
CREF Money Market
Multi-Asset
CREF Social Choice
TIAA Access Lifecycle Fund 2010 T4
TIAA Access Lifecycle Fund 2015 T4
TIAA Access Lifecycle Fund 2020 T4
TIAA Access Lifecycle Fund 2025 T4
TIAA Access Lifecycle Fund 2030 T4
TIAA Access Lifecycle Fund 2035 T4
TIAA Access Lifecycle Fund 2040 T4
TIAA Access Lifecycle Fund 2045 T4
TIAA Access Lifecycle Fund 2050 T4
TIAA Access Lifecycle Retirement Income Fund T4

 

[RumblingRosco]

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[dbztrk]

I think I would put it all into the CREF Stock, assuming you're at least 20 years away from retirement and have no plans to use it before retiring. If you look here, you can see that it invests about 70% into US stocks and 30% into international stocks, which is a decent balance imo. I'm having a hard time finding the expense ratio though... it looks like it may be as high as 0.485% which is fairly high, but since your money is locked into the 401b I'm not sure if there is any better option. Maybe someone else can weigh in on this?

I'm 30 years old. So it I am more than 20 years from retirement. I admit that I know very little about this but to invest all of it into CREF stock sounds risky.

 

[RumblingRosco]

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[simplayer]

Hey guys, I have a 401b plan that I contribute to. However, I don't have the faintest idea about how how to allocate the funds. I suck at investment.

Can anyone tell me what the best allocation would be? I've listed my current allocation below.
snip

It's hard to say. I don't know what those allocations (I think these are just names they give you, the actual funds are allocated to other fund names, like this here).

If you could give us the expense ratio and names of the funds (like the link I posted above did), we could see what your options are and then recommend.

 

[iamblades]

I'm 30 years old. So it I am more than 20 years from retirement. I admit that I know very little about this but to invest all of it into CREF stock sounds risky.

All he is really suggesting is that you take the 40% allocation into the TIAA traditional fund and put it into CREF stock basically. The other investments you currently have are all duplicates of CREF stock anyway, that is false diversity.

There is absolutely no way you should have any of your money in an annuity fund at 30 though. If you want more safety, bonds and real estate would be a much better option than annuities.

Even near or past retirement age I would advise against investing in annuities, and certainly not at a 40% rate.

Especially in this interest rate climate, annuity returns are absolute shit.

 

[dbztrk]

All he is really suggesting is that you take the 40% allocation into the TIAA traditional fund and put it into CREF stock basically. The other investments you currently have are all duplicates of CREF stock anyway, that is false diversity.

There is absolutely no way you should have any of your money in an annuity fund at 30 though. If you want more safety, bonds and real estate would be a much better option than annuities.

Even near or past retirement age I would advise against investing in annuities, and certainly not at a 40% rate.

Especially in this interest rate climate, annuity returns are absolute shit.

Thanks. I've done an 80/20 split between CREF stock and real estate. Maybe at some point i'll be able to work up the nerve and do 100% CREF stock.

 

[Cyan]

Thanks. I've done an 80/20 split between CREF stock and real estate. Maybe at some point i'll be able to work up the nerve and do 100% CREF stock.

If someone advises you to take more risk than you're comfortable with, and all they know about you is your age and that you're somewhat risk-averse, you should feel free to ignore their advice. I say this not to belittle the people giving the advice, who I'm sure are well-meaning and are trying to help, but to point out that the advice can't possibly be based on your personal situation.

It's not even conventional wisdom or a standard piece of advice. I don't know why so many of the posters here are highly aggressive investors, but the typical rules of thumb are far more conservative than "100% stocks until age 50." The old, common rule of thumb as far as asset allocation was to allocate your age % in bonds, and the rest in stocks (e.g. at age 30 you're 30% in bonds and 70% in stocks). This has the benefit of being straightforward and simple, and of automatically increasing your bond allocation as you age. Many in the investment world now consider this allocation to be too conservative, given that life expectancy is higher than it used to be and will probably continue to rise. Some advisors offer "your age minus 10%" or "your age minus 20%" as new rules of thumb (e.g. at age 30 you're 20% bonds, 80% stocks for the former, or 10%/90% for the latter). Though again, remember that these are generic rules of thumb and may not be appropriate for you.

After my first paragraph above, it'd be pretty hypocritical of me to give you specific advice, but what the hell: based on my vast knowledge of your personal situation I think you're probably better off with a more conservative approach.

 

[clav]

Anyone here invest in a municipal bond fund?

 

[FallingEdge]

God, I wasted my early years by not investing into a 401K at all. I'm only 29 but still. Missed out on when I was 25. That image at the top of the page is depressing. I just started a new job and will not be making the same mistake.

 

[iamblades]

If someone advises you to take more risk than you're comfortable with, and all they know about you is your age and that you're somewhat risk-averse, you should feel free to ignore their advice. I say this not to belittle the people giving the advice, who I'm sure are well-meaning and are trying to help, but to point out that the advice can't possibly be based on your personal situation.

It's not even conventional wisdom or a standard piece of advice. I don't know why so many of the posters here are highly aggressive investors, but the typical rules of thumb are far more conservative than "100% stocks until age 50." The old, common rule of thumb as far as asset allocation was to allocate your age % in bonds, and the rest in stocks (e.g. at age 30 you're 30% in bonds and 70% in stocks). This has the benefit of being straightforward and simple, and of automatically increasing your bond allocation as you age. Many in the investment world now consider this allocation to be too conservative, given that life expectancy is higher than it used to be and will probably continue to rise. Some advisors offer "your age minus 10%" or "your age minus 20%" as new rules of thumb (e.g. at age 30 you're 20% bonds, 80% stocks for the former, or 10%/90% for the latter). Though again, remember that these are generic rules of thumb and may not be appropriate for you.

After my first paragraph above, it'd be pretty hypocritical of me to give you specific advice, but what the hell: based on my vast knowledge of your personal situation I think you're probably better off with a more conservative approach.

Just to clarify, I was not entirely advocating a 100% stock allocation. I don't do that myself, I actually have fairly low %(like 65%) or something last time i ran the numbers on my allocation) of common stock, I hold lots of real estate/junk bond/MLP/preferred stock funds, and there is no reason not to hold these types of assets in a tax sheltered retirement account like a 401(b).

I do think a 100% equity index allocation is a much better option than an annuity fund though. I also suggested that real estate and bonds are better conservative options for someone who doesn't want to go full stocks.

The point is that he should certainly have more allocated into stocks at his age(and he was duplicating his investments in the stock funds he did have, giving him false diversification), and he shouldn't have any money going into that annuity fund at his age, much less 40% of his total capital.

Also appealing to conventional wisdom is not really a good idea either, conventional wisdom in retirement planning still pushes people towards shitty managed mutual fund that will suck up a large percentage of an investor's gains with fees and loads with the idea that investing is 'too risky and complicated' for the average person to handle. I'm sure he had that terrible annuity fund because whoever helped him set up the 401(b) was thinking with the 'conventional wisdom' too.

 

[Laekon]

So I'm switching jobs and have $50K in my old 401k to move some place. I just started a IRA last year at Fidelity and so I'm thinking of rolling it into that. I fall in the safe 3 index fund investor bracket. Is there any advantage to opening a new account at a Vanguard? I have enough to get the low expense Spartan funds at Fidelity.

 

[giga]

God, I wasted my early years by not investing into a 401K at all. I'm only 29 but still. Missed out on when I was 25. That image at the top of the page is depressing. I just started a new job and will not be making the same mistake.

Roth IRA bro.

 

[giga]

So I'm switching jobs and have $50K in my old 401k to move some place. I just started a IRA last year at Fidelity and so I'm thinking of rolling it into that. I fall in the safe 3 index fund investor bracket. Is there any advantage to opening a new account at a Vanguard? I have enough to get the low expense Spartan funds at Fidelity.

Vanguard Admiral shares will have even lower expense ratios.

 

[iamblades]

Vanguard Admiral shares will have even lower expense ratios.

Fidelity's Spartan funds seem to be roughly on par with Vanguard's admiral shares.

For example both brokerage's S&P 500 index fund has a .05% expense ratio.

It varies depending on the particular fund, vanguard's total market index is a .05 while fidelity's is .06 and fidelity's reit index is a .09 while vanguard's is a .10, but overall they roughly balance out it seems.

I doubt a .01% here or there is really worth the hassle of moving an account over either way.

 

[giga]

Fidelity's Spartan funds seem to be roughly on par with Vanguard's admiral shares.

For example both brokerage's S&P 500 index fund has a .05% expense ratio.

It varies depending on the particular fund, vanguard's total market index is a .05 while fidelity's is .06 and fidelity's reit index is a .09 while vanguard's is a .10, but overall they roughly balance out it seems.

I doubt a .01% here or there is really worth the hassle of moving an account over either way.

Oh odd, I swore last time I looked at the total stock Spartan fund, it was around .07. Yeah I agree .01 is not a big enough difference to care.

If I was to really try to come up with a reason, I would cite my preference for how vanguard is owned by its clients. But again, if you have an IRA with fidelity already, there's no big reason to swtich outside of personal preference.

 

[iamblades]

Nobody in their 20s, 30s or 40s should be messing with "annuity funds" (not right terms).

Lastly, I applaud Cyan's attitude to this thread and have advocated before that we need to be very clear that the ideas discussed in this thread are opinions that May or may not be suitable to an individual whom we know very little about. We hit dead ends in those conversations and wind up with conclusions such as 'people shouldn't be risk averse, they shouldn't pay people fees for advice and that an index is an all in one solution'. If you're registered under finra and regurgitate a message like that, guess what: enjoy prison time and a life long record that follows you.

People come from very different walks in life, different struggles and money is symbolic to personal pain; pain they either endured to earn the money they have or they endured because someone they loved died and passed it on to them. Money is directly tied to a human being and you have to understand an individual's personal physiology to understand how to connect investment solutions and convey ideas to them that will enhance their lives. Sticking to a 80/20 discussion is product oriented and not strategic at all. It can be shallow and, more importantly, highly dismissive about the fears people have. The investment industry has always been about mostly grounded in psychological needs and outlooks. Yes, there is objectivity, and studies and a science to it, but that doesn't drive peoples individual goals. Not everyone is out to beat a S&P benchmark nor should it be. The approach should be around what is someones vision of financial success, their fears, their story and attitude about money and then start to foster a relationship from there; one that does not hinge on "well fuck, you have 30 years ahead of you why are you afraid" planning.

Xo

Which is more of a sign of how broken our financial regulations are than anything.

If should be the broker/financial planner 'advising' a customer into buying a bunch of overpriced underperforming mutual funds with commissions and loads that should be going to jail, not one that advises going the value investing route.

All the bit about emotions and feelings is nice sounding, but terrible investment advice. Making financial decisions based on feelings is the surest way to go broke that I know of.

I'm also not saying 'man up and take more risk', I'm saying you have to understand what is and isn't a risk when you are making an investment. If you buy a productive asset and hold it for the long term, you will make a profit. It is not complicated and there is no real risk to it. There is variance, in that the valuations will fluctuate, but if a company makes a profit and you own part of that company, you will also make a profit. In a broad index the vast majority of companies will make a profit on average, as the ones that don't go out of business or drop out of the index.

It's not complicated, its not risky, and making it sound that way only benefits the brokers who are skimming 1% off the top every year.

 

[gooderthanu]

Always pay off debt before investing. You'll make/save more money this way.

I kind am sort of leaning this way.

We are doing the normal repayment so should take 10yrs or so. We had jumped to IBR at one point but now we are doing good and back to normal. Portion of the loan $15k is at 6.5%.

If I just pay it off normally at 6.5% interest (plus small tax benefit which is negligible of course) then I pay $5400 interest. If I invest into ira and get 8% back or something like that then I'm making more money already right?

BTW Ive already been fully contributing 401k. I'm pretty content financially so far. Just turned 30!!

 

[RumblingRosco]

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[iamblades]

I don't personally, but if the rates remain the same (long-shot there) I may switch into them as I near retirement in 30-40 years.



You're correct in that if you invest into an IRA you'll on average slightly beat out that 6.5% interest... BUT, I would highly recommend you pay down the 6.5% first as you are guaranteed "earning" 6.5% on your money by paying that down. If you invest in the market, you might outpace that 6.5%, but the likelihood to do so isn't high enough to make the minor, potential profit worthwhile.

Basically, you have a 100% chance to earn 6.5% on your money if you pay down your debt, but you have an undetermined chance of earning more than 6.5% by investing. I'd pay down that debt first.

^^

My personal rule of thumb is that you should pay off any debt that has an interest rate more than 50% of your expected rate of return. So basically any debt with an interest rate higher than ~4.5% needs to go asap.

It's just a personal rule of mine, with no real math behind it, and in the current interest rate climate it is rare to have a loan with around a 4-6% interest rate, it's either lower or much higher, so the decision is typically more obvious. But at 6.5%, I'd definitely pay it off asap.

One exception I would add is if you want to set up automatic periodic contributions to your IRA. If that is you plan I would work it out in your budget to where you can do both at the same time. Mainly just because it's a good habit to get into, and I wouldn't want someone to put that off until they had their debt paid off and maybe never end up doing it.

 

[GhaleonEB]

^^

My personal rule of thumb is that you should pay off any debt that has an interest rate more than 50% of your expected rate of return. So basically any debt with an interest rate higher than ~4.5% needs to go asap.

It's just a personal rule of mine, with no real math behind it, and in the current interest rate climate it is rare to have a loan with around a 4-6% interest rate, it's either lower or much higher, so the decision is typically more obvious. But at 6.5%, I'd definitely pay it off asap.

One exception I would add is if you want to set up automatic periodic contributions to your IRA. If that is you plan I would work it out in your budget to where you can do both at the same time. Mainly just because it's a good habit to get into, and I wouldn't want someone to put that off until they had their debt paid off and maybe never end up doing it.

That seems like a pretty good rule of thumb. I'd just note that it doesn't have to be one or the other, you can do a mix, putting more into one category or another depending on your priority. So you can pay down the loans and save for retirement, but split them 75/25 (as an example). Whether you do split it up and what the mix is will depend in the interest rates, debt, your goals etc. In my own investing we split stuff into buckets and as one bucket reached its goal, shifted to putting more into others.

 

[simplayer]

Blah, Canadian ER suck.

My bank is charging 2.34% for managed funds. The lowest I can find for index funds is .53%

:*(

 

[Randolph Freelander]

My bank is charging 2.34% for managed funds. The lowest I can find for index funds is .53%

:*(

Find a better bank / brokerage firm?

 

[simplayer]

Find a better bank / brokerage firm?

Ya, I might look into that.

My former employer's program isn't much better (.4%), so I'm not expecting much.

I'm not living in the country anymore, not sure how much trouble that will cause in re-allocating.

 

[watershed]

I'm starting to save money now that I am debt free. I am looking into getting a high yield savings account, investing some in the stock market, and possibly getting a Roth IRA once I am drawing a monthly salary again.

This thread is perfect for me. I'm so glad it popped up on the first page again. I guess I should look into index funds as well.

 

[johnsmith]

Some good stuff here: https://www.jpmorganfunds.com/cm/Sa...RL=gtrbrowseslides&pagename=jpmfVanityWrapper

Lol, the Merrill Lynch guys showed those exact same slides at a 401K meeting at work a couple of days ago.

 

[goodcow]

Hey guys, I have a 401b plan that I contribute to. However, I don't have the faintest idea about how how to allocate the funds. I suck at investment.

Can anyone tell me what the best allocation would be? I've listed my current allocation below.

Guaranteed
TIAA Traditional - 40%
Equities
CREF Stock - 20%
CREF Global Equities 10%
CREF Growth 10%
CREF Equity Index -10%
TIAA Access International Equity Fund T4
TIAA Access Growth & Income Fund T4
TIAA Access Large-Cap Value Fund T4
TIAA Access Social Choice Equity Fund T4
TIAA Access Mid-Cap Growth Fund T4
TIAA Access Mid-Cap Value Fund T4
TIAA Access Small-Cap Equity Fund T4
TIAA Access Equity Index Fund T4
TIAA Access Small-Cap Blend Index Fund T4
TIAA Access Real Estate Securities Fund T4
TIAA Access Large-Cap Growth Fund T4
Real Estate
TIAA Real Estate - 10%
Fixed Income
CREF Bond Market
CREF Inflation-Linked Bond
TIAA Access Bond Plus Fund T4
Money Market
CREF Money Market
Multi-Asset
CREF Social Choice
TIAA Access Lifecycle Fund 2010 T4
TIAA Access Lifecycle Fund 2015 T4
TIAA Access Lifecycle Fund 2020 T4
TIAA Access Lifecycle Fund 2025 T4
TIAA Access Lifecycle Fund 2030 T4
TIAA Access Lifecycle Fund 2035 T4
TIAA Access Lifecycle Fund 2040 T4
TIAA Access Lifecycle Fund 2045 T4
TIAA Access Lifecycle Fund 2050 T4
TIAA Access Lifecycle Retirement Income Fund T4

Hello, fellow TIAAer!

This is my current investment mix:

20% - TIAA Access Large-Cap Growth Index Fund T1
20% - TIAA Access S&P 500 Index Fund T1
20% - TIAA Access Large-Cap Value Index Fund T1
20% - TIAA Access Small-Cap Blend Index Fund T1
20% - TIAA Access-T. Rowe Price Institutional Large Cap Growth T1

I was previously all in on the 2040 fund, but given the expense charge difference versus one of their index funds (approx. 0.5%), the (potentially miscalculated, I admit) 30 year compounded difference was the equivalent of me being able to put in 3% less into my TDA.

TIAA Access-T. Rowe Price Institutional Large Cap Growth T1 has a higher expense charge than I want, but that fund has been on a tear lately, so I'll eventually re-shift my mix to 25% each on the four index funds when I feel it's right.

 

[RumblingRosco]

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[watershed]

Some advice please:

What do you guys and gals make of this Vanguard LifeStrategy Income Fund?
https://personal.vanguard.com/us/funds/snapshot?FundId=0723&FundIntExt=INT#tab=0
Would it be a good place to invest along with a high yield savings account and 401k/Roth IRA?

 

[iamblades]

Some advice please:

What do you guys and gals make of this Vanguard LifeStrategy Income Fund?
https://personal.vanguard.com/us/funds/snapshot?FundId=0723&FundIntExt=INT#tab=0
Would it be a good place to invest along with a high yield savings account and 401k/Roth IRA?

Way too bond heavy IMO, that fund is 80% bonds.

 

[Zizbuka]

If you're not comfortable allocating your funds, look into Vanguard's Target Retirement funds. Basically, you pick a fund based on your target retirement year, and it adjusts the risk factor. Aggressive early on, more conservative as you get closer to retirement.

If you're 30, and plan on retiring at 65, you'd pick the Target Retirement 2050 fund. It would be stock heavy now, and lower the risk slightly over time.

 

[watershed]

Way too bond heavy IMO, that fund is 80% bonds.

If you're not comfortable allocating your funds, look into Vanguard's Target Retirement funds. Basically, you pick a fund based on your target retirement year, and it adjusts the risk factor. Aggressive early on, more conservative as you get closer to retirement.

If you're 30, and plan on retiring at 65, you'd pick the Target Retirement 2050 fund. It would be stock heavy now, and lower the risk slightly over time.

Thanks for the comments. I'll keep looking around at different index funds. But I am comfortable with bond heavy 80/20 split. I have a separate plan for higher risk investing.

 

[HKnightz]

Hey guys, I'm thinking about investing after reading some of the op. However, I'm currently about 440k in student debt, so I'm just wondering how much I should be putting into investing and how much I should I pay towards debt. Debt is probably around 6.5% interest. Should I just try to finish that debt off ASAP?

 

[Randolph Freelander]

Hey guys, I'm thinking about investing after reading some of the op. However, I'm currently about 440k in student debt, so I'm just wondering how much I should be putting into investing and how much I should I pay towards debt. Debt is probably around 6.5% interest. Should I just try to finish that debt off ASAP?

440K in student loans. My eyes are popping out of my head.

Please tell me you're in a country where 440K is really like 13 dollars and 92 cents. Please.

Me personally, I'd split it and start saving for retirement. 8% > 6.5%. Another scenario was presented in this thread about a 6.5% loan where it might not make sense, but in your case, that 6.5% will be around for a presumably long time, which gives the market long enough to smooth out volatility and approach historical rates of return on an investment strategy. So I'd get in the habit of saving for myself while at the same time paying down that debt. But I'm not you, and 440K at 6.5% might keep me up nights.

Good luck.

 

[HKnightz]

440K in student loans. My eyes are popping out of my head.

Please tell me you're in a country where 440K is really like 13 dollars and 92 cents. Please.

Me personally, I'd split it and start saving for retirement. 8% > 6.5%. Another scenario was presented in this thread about a 6.5% loan where it might not make sense, but in your case, that 6.5% will be around for a presumably long time, which gives the market long enough to smooth out volatility and approach historical rates of return on an investment strategy. So I'd get in the habit of saving for myself while at the same time paying down that debt. But I'm not you, and 440K at 6.5% might keep me up nights.

Good luck.

Thanks a lot for your reply, I'm fortunate to be pretty frugal in growing up so I usually don't splurge. I was able to save approximately 4k in a MM account with ally bank while payingaround 40k towards the loans. The reason why I was hesitant to really invest was because I wanted to have something I can set aside for emergencies as well as get some return. Now I'm just wondering if I should dabble in index funds. Haha I try not to think about substantial amount too much, but thanks for the input!

 

[Randolph Freelander]

Thanks a lot for your reply, I'm fortunate to be pretty frugal in growing up so I usually don't splurge. I was able to save approximately 4k in a MM account with ally bank while payingaround 40k towards the loans. The reason why I was hesitant to really invest was because I wanted to have something I can set aside for emergencies as well as get some return. Now I'm just wondering if I should dabble in index funds. Haha I try not to think about substantial amount too much, but thanks for the input!

Well, no, for you, I think your first idea made sense, save for emergencies first. Build that savings account to cover a few months of expenses. After that, then think about how to best pay down your loan while also saving for retirement. It's at that point where I would recommend getting into some standard market index funds while still paying down the debt. But honestly, 6.5% and 440K... that's testing my sanity a bit. Still, the math is sound, 8-9% is certainly better than 6.5, so start saving and come out a bit ahead. If you're up for the risk.

 

[clav]

Some advice please:

What do you guys and gals make of this Vanguard LifeStrategy Income Fund?
https://personal.vanguard.com/us/funds/snapshot?FundId=0723&FundIntExt=INT#tab=0
Would it be a good place to invest along with a high yield savings account and 401k/Roth IRA?

Sounds like you're investing this in a taxable account.

Terrible idea.

If this account is for IRA instead, there are much better options.

Thanks for the comments. I'll keep looking around at different index funds. But I am comfortable with bond heavy 80/20 split. I have a separate plan for higher risk investing.

If you're already separating your investments, then why not just pick a bond fund rather than a fund of funds?

What account are you thinking of opening?

 

[Akira]

A couple of weeks ago, I opened a Roth IRA with Vanguard and invested in the Total USA Market Index Fund. It's set to reinvest any capital gains or dividends. So I initially gained 1.5%, but since then I lost about 2% of the original investment value (Total Balance is now down $70~). Ignoring the value of the stock, reinvestment means that anytime the fund goes up, I will keep on getting more shares even without contributing more to the IRA, right? So even though I lost some total money value because the index went down, I will keep on increasing my number of shares even with the minor upward fluctuation of the fund. I'm not sure if I am explaining this clearly...

Second try: Let's say even if the balance is below my initial $4,000 investment for a long period because of the market, any time it goes up (but I'm still down value wise), it will reinvest and buy more shares right? Or do I only reinvest any capital gain OVER my initial $4,000 investment?

 

[clav]

A couple of weeks ago, I opened a Roth IRA with Vanguard and invested in the Total USA Market Index Fund. It's set to reinvest any capital gains or dividends. So I initially gained 1.5%, but since then I lost about 2% of the original investment value (Total Balance is now down $70~). Ignoring the value of the stock, reinvestment means that anytime the fund goes up, I will keep on getting more shares even without contributing more to the IRA, right? So even though I lost some total money value because the index went down, I will keep on increasing my number of shares even with the minor upward fluctuation of the fund. I'm not sure if I am explaining this clearly...

Second try: Let's say even if the balance is below my initial $4,000 investment for a long period because of the market, any time it goes up (but I'm still down value wise), it will reinvest and buy more shares right? Or do I only reinvest any capital gain OVER my initial $4,000 investment?

Stop worrying about the gains and learn to look at your account quarter annually, semiannually, or annually. You're not a day trader here.

Right for a tax-deferred account, you do not need to worry about automatic reinvestments because you don't have to report capital gains when you sell the investments.

The idea is time is on your side for you to gain all those dividends to reinvest into your account.

 

[Swig_]

Is there any reason that it would be bad to have two separate IRAs instead of just one? I currently have one IRA with a major broker, but I recently left a state government job and need to do something with my retirement money I earned in several accounts there. I was thinking of opening a second Vanguard IRA, but I'm not sure if there's any good or bad reasons to do that, compared to just rolling it into my current IRA.

 

[Husker86]

Is there any reason that it would be bad to have two separate IRAs instead of just one? I currently have one IRA with a major broker, but I recently left a state government job and need to do something with my retirement money I earned in several accounts there. I was thinking of opening a second Vanguard IRA, but I'm not sure if there's any good or bad reasons to do that, compared to just rolling it into my current IRA.

I suppose the only bad part would be keeping track of contributions since you can only put in $5,500/year to all of your IRAs combined.

 

[watershed]

Sounds like you're investing this in a taxable account.

Terrible idea.

If this account is for IRA instead, there are much better options.



If you're already separating your investments, then why not just pick a bond fund rather than a fund of funds?

What account are you thinking of opening?

What are some nontaxable investment accounts?

I don't know the benefits of picking a bond fund versus a mixed funds fund.

 

[iamblades]

What are some nontaxable investment accounts?

I don't know the benefits of picking a bond fund versus a mixed funds fund.

Non-taxable is probably the wrong word. Tax deferred or after tax are more accurate.

A traditional IRA is tax deferred, meaning you deduct the contributions on your tax return, and you pay no taxes on profits in the IRA, you pay taxes on distributions from the IRA when you reach retirement age. 401(k) or 403(b) and related retirement accounts are typically also set up as tax deferred accounts, though there are Roth-type variants.

A Roth IRA is after tax. You pay taxes on your contributions to a roth IRA and any profits from the roth are completely tax free.

You typically want to place any bond fund or any other investment that generates dividend income into one of these tax sheltered accounts, otherwise you will have to pay taxes on the dividends at the full income tax rate. Use your taxable accounts to invest in assets that give cap gains because long term cap gains are taxed at a lower rate.

Benefits of picking a bond fund vs a mixed fund is mainly that a fund of funds will typically have substantially higher expenses than the base funds will. Some of the mixed asset funds with the largest asset values can get pretty close to the base funds in expense ratios, but they will never be quite as cheap, because you are paying expenses on 2 levels instead of just 1.

 

[watershed]

Non-taxable is probably the wrong word. Tax deferred or after tax are more accurate.

A traditional IRA is tax deferred, meaning you deduct the contributions on your tax return, and you pay no taxes on profits in the IRA, you pay taxes on distributions from the IRA when you reach retirement age. 401(k) or 403(b) and related retirement accounts are typically also set up as tax deferred accounts, though there are Roth-type variants.

A Roth IRA is after tax. You pay taxes on your contributions to a roth IRA and any profits from the roth are completely tax free.

You typically want to place any bond fund or any other investment that generates dividend income into one of these tax sheltered accounts, otherwise you will have to pay taxes on the dividends at the full income tax rate. Use your taxable accounts to invest in assets that give cap gains because long term cap gains are taxed at a lower rate.

Benefits of picking a bond fund vs a mixed fund is mainly that a fund of funds will typically have substantially higher expenses than the base funds will. Some of the mixed asset funds with the largest asset values can get pretty close to the base funds in expense ratios, but they will never be quite as cheap, because you are paying expenses on 2 levels instead of just 1.

Okay, I see now. I am aware of 401ks, IRAs, Roth IRAs and Roth 401ks. I was taught to refer to those as "tax favored" accounts.

I hope to have either an employer backed 401k or an IRA in the future. But right now I am looking to invest some of my money in a low cost, low expenses fund of some sort. Something with low/moderate risk.

Edit: Hang on, I've been confusing myself. Here is what I plan on doing. I want to get a Roth IRA thru vanguard and select the index fund I spoke of earlier. It's a low risk, 80% bond 20% stock fund. I might fudge with the distribution a bit but more or less that will be it.

Right now I am looking for another way to invest some money into something that is not a retirement account. That's the area I am researching now.

 

[Piecake]

Perhaps I misunderstood. I thought you were talking about switching from Piecake's 100% stock allocation to a 30/70 or 40/60 bond/stock mix at a given point in time (10 years out from retirement), rather than gradually. Or rather, arguing why such an approach is problematic. That wasn't what I thought Piecake's strategy was, but then perhaps I misread that as well. I might be on a roll!



Right, I was noting how aggressive it is. I personally see a moderate bond allocation 20 years from retirement as wasted growth potential, but then I have a high risk tolarance and am not going flinch due to market gyrations. Those who desire a more stable retirement portfolio that far out should hold bonds. (Which is probably most people, especially those entering this thread looking for advice.)

My strategy is that the 10 year time period is basically when I will begin to start thinking about moving into bonds. I definitely am not going to automatically move into bonds 10 years from retirement because the market might be in the dumps. Personally, I don't think gradually or all at once makes much of a difference. You do not know what the market is going to be like those next 10 years so it might make sense to dump it all into bonds at a specific point. If you want to do it gradually, thats fine, I think it will work with the whole 10 year start point thing too.

What I think is important is to simply get the bonds you need when you retire. I don't think its really important how you get there. You just need to get there. While my strategy does require a bit of market timing, I think the 10 year window is enough to move into bonds at a good price, whether you want to do that all in one go or gradually. Hell, if its a booming market at year 10, ill probably move it in gradually, and not a lump sum.

This is a bit off tangent, but this is one of the reasons why I don't particularly like target date funds. You have no option to sell off specific assets. I think thats a huge drawback. What if in my 65th year when I am retired the stock market tanks and I only have my target date fund to sell? Well, I will be forced to sell stocks in that TD fund as well. The simplicity does not seem worth it to me.

Hey guys, I'm thinking about investing after reading some of the op. However, I'm currently about 440k in student debt, so I'm just wondering how much I should be putting into investing and how much I should I pay towards debt. Debt is probably around 6.5% interest. Should I just try to finish that debt off ASAP?

I can't even comprehend a 440k student loan debt. I honestly can not give you good advice on how to handle that. I mean, 6.5% interest is defintely high enough that you need to pay that down ASAP, but since you have a 440k debt that is going to take a LONG time. You will lose out on a lot of 401k and IRA contributions that way.

Any way you can just fake your own death or something?



Concerning the original post, I just included links to some people's thoughts who disagree with me on asset/bond allocation and investment strategy. I swear, I am not trying to indoctrinate people into my rather aggressive index strategy (though I obviously am trying to get people to invest using index funds).

 

[clav]

Okay, I see now. I am aware of 401ks, IRAs, Roth IRAs and Roth 401ks. I was taught to refer to those as "tax favored" accounts.

I hope to have either an employer backed 401k or an IRA in the future. But right now I am looking to invest some of my money in a low cost, low expenses fund of some sort. Something with low/moderate risk.

Edit: Hang on, I've been confusing myself. Here is what I plan on doing. I want to get a Roth IRA thru vanguard and select the index fund I spoke of earlier. It's a low risk, 80% bond 20% stock fund. I might fudge with the distribution a bit but more or less that will be it.

You can open a Roth IRA now (assuming that you're employed.) You can contribute up to your reported earned income for the year or $5500 ($6500 for ages 50+), whichever number comes first. You can still make a contribution to 2013 before April 15, so you can potentially add $11K ($13K for ages 50+) to your Roth IRA for 2014.

That fund you spoke earlier is not an index fund. I like to call it a lazy fund or more appropriately fund of funds.

If you're looking for a lazy fund in a Roth IRA with Vanguard, purchase the Target Retirement fund. Select the appropriate risk (by the year) and put money there. The fund will automatically adjust the percentages as you approach to that retirement year. For the fund to work correctly, this is the only fund to hold in that IRA.

The fund itself consists of three investment pillars: a) Total Stock Market (index fund) b) Total International Stock Market (index fund) c) Total Bond Market. Enough portfolio diversification without you doing any homework.

The expense ratio for that fund is reasonable because it's just the average of the investor class shares. Mimicking the percentages would result in the same expense ratio until you hit a certain limit (~$30K). Then perhaps you can consider on exchanging the fund and mimic the admiral class shares with similar percentages.

Right now I am looking for another way to invest some money into something that is not a retirement account. That's the area I am researching now.

Sounds like you just want to open a certificate of deposit. Unfortunately interest rates are turrible.

Maybe consider an inflation bond if you really don't like risk. Inflation bond rates change twice an year: a) May b) November.

 

[acksman]

Blargh, so our company failed their 401k discrimination test and I ended up being in the HCE group. I have no clue why they did not test it mid year so we would know ahead of time and I could lower my plan deduction. Now I have a large check I do not want and it will hit me on my 2014 taxes as income.

Should I take that money and put it in a Traditional IRA and take the tax deduction this year or can I defer? Am I looking at this the wrong way?

 

[Piecake]

Blargh, so our company failed their 401k discrimination test and I ended up being in the HCE group. I have no clue why they did not test it mid year so we would know ahead of time and I could lower my plan deduction. Now I have a large check I do not want and it will hit me on my 2014 taxes as income.

Should I take that money and put it in a Traditional IRA and take the tax deduction this year or can I defer? Am I looking at this the wrong way?

So the contributions you allocated to your 401k don't count? Sorry, I am not familiar with discrimination tests and HCE groups.

I honestly don't know what paths you can take, but if you can put all of that money in an iRA, do that. If you can only do your normal 5.5k yearly contribution then I would do that if there is no other steps that you can take that will get all the money into a tax advantaged account.

I would definitely talk to HR about your options.

 

[andrerobot]

I'm sorry guys for derailing this incredibly useful and wonderful thread (go Vanguard!), but I'm new in the US and I want to save for a car and/or a house. Can someone recommend me an instrument with good returns? My bank just gives about 0.15 APY. Thanks

 

[iamblades]

I'm sorry guys for derailing this incredibly useful and wonderful thread (go Vanguard!), but I'm new in the US and I want to save for a car and/or a house. Can someone recommend me an instrument with good returns? My bank just gives about 0.15 APY. Thanks

Rates are pretty shit all over as far as cash goes..

Ally bank and GE capital seem to have the best CD rates right now as far as national banks go.

I've had a money market account with Ally since they were GMAC, no complaints so far.