RumblingRosco
Member
-
-
Hey, guest user. Hope you're enjoying NeoGAF! Have you considered registering for an account? Come join us and add your take to the daily discourse.
How to Invest for Retirement
- Thread starter Piecake
- Start date
http://www.depositaccounts.com/
A site that tracks bank rates.
How soon are you going to buy the car/house?
I've been putting money in a Roth 401K with Vanguard for a few years now. I just noticed today that I could switch my index funds to admiral shares. Googling seems to tell me that it's lower cost with no downside. However, it's all wrapped in finance language, so I'm not 100% sure. Is this one of those "too good to be true" thing?
No, once you have a certain amount at Vanguard, you are eligible for a lower expense ratio fund; it's what you get for being an investor with assets at that level. That's pretty much all there is to it.
Fidelity's index funds are the same, which I use, and they rather helpfully convert to their Advantage class once you hit the threshold, automatically. From what you and others have posted, it's manual at Vanguard.
RumblingRosco
Member
-
2008 was a very scary time to invest in any company.
Sounds like it might actually be similar. While Fidelity converted for me automatically, it was delayed by a month or so from when I first went over the threshold. Could be they make sure I stay over for a certain period of time similar to Vanguard.
andrerobot
Member
Thanks guys! I guess I'm not sure when I'll buy a car, I guess when I'll need it; the house, hopefully in two years from now.
NinjaMouse
Member
Yeah, once you reach $10k in a fund, you'll get a notification letting you know you qualify for Admiral shares and it'll offer you the chance to covert to Admiral shares. From my experience, conversion wasn't automatic, and I had to initiate the action, but they notified me almost immediately and it's a simple "yes/no" form.
Zaraki_Kenpachi
Member
So a couple questions...
Any benefit to using a target date fund for my 401k?
I have three funds I'm looking at Large cap value index fund with .07% gross ratio, s&p 500 index fund with .04% gross ratio, and large cap growth index fund with .07% gross ratio. I'm sort of leaving between growth and s+p fund. The large caps use Russell 1000 as their index.
Finally, my employer has no match for 1st year. Is there any benefit to using the plan with no match? Or should I just dump it into a Roth IRA instead?
Thanks
Any benefit to using a target date fund for my 401k?
I have three funds I'm looking at Large cap value index fund with .07% gross ratio, s&p 500 index fund with .04% gross ratio, and large cap growth index fund with .07% gross ratio. I'm sort of leaving between growth and s+p fund. The large caps use Russell 1000 as their index.
Finally, my employer has no match for 1st year. Is there any benefit to using the plan with no match? Or should I just dump it into a Roth IRA instead?
Thanks
Target date funds are easy way to diversify but are normally expensive.
Do you work for a huge employer? Those are the lowest expense ratios I've ever seen in a 401K.
Your choices have just a slight difference in risk so it's tough say.
You can put $17k in the 401 while only $5.5k in the Roth. The 401k will also reduce you taxes as it's set aside before taxes. If you are just starting in your career and feel your income will increase a lot in the future start with the Roth and if you max it the go with the 401k.
Zaraki_Kenpachi
Member
Yeah, I work for one of the major banks. I have to see how their Roth compares with say vanguard since I'm mostly interested in index funds so far. I should see nice increases as I gain experience so I guess I'll do Roth first since they don't match. Even with tax, I feel I should max out my employers match on the 401k before doing Roth once they match next year.
Well, target date funds have nice diversification. There are issues though. The diversification might not be to your liking, and I think its rather foolish to hold onto target date funds till retirement. So yea, if you like the asset allocation and don't plan on holding it forever, then a target date fund is fine.
What I mean by that is if your stocks and bonds are in one fund and you need to sell off a portion of that for income in retirement, you have to sell off both assets. That doesnt seem particularly good if you are in huge market downturn when selling bonds would be FAR preferable to selling stocks. Target date funds really don't give you a choice though.
I don't see any benefit of choosing a 401k over a Roth IRA if your employer doesnt match. Roths give you complete freedom and can be free of maintenance costs.
Depends on the fund. I understand Vanguard target date funds actually keep you rebalanced (though many target date funds don't rebalance often). The reason you would want to sell bonds rather than stocks in a market downturn is that the downturn would likely have thrown your asset allocation out of whack. That wouldn't be a problem with a fund that rebalances.
This is completely wrong. You absolutely must take emotions and feelings into account when making financial decisions. If investing aggressively in stocks is going to give you ulcers, and make you want to jump out of the market the second there's a down arrow, then you don't invest aggressively in stocks. It's that simple.
There's a common problem in financial advice in general where people think that once you've found the mathematically optimal solution, people should just follow that and emotions be damned. The trouble is that it doesn't generalize. (Another good example of this is the "snowball method" of debt repayment, which gets slammed for not being optimal but apparently works really well for people in practice.) You can advise people to do the mathematically optimal thing until you're blue in the face, but they won't actually do it unless it aligns with their feelings and emotions.
So, sure, if you have the discipline to tamp down your emotions and not bail out of your asset allocation when there's a downturn, that's great. But if that's the case, we're already defining you as an investor with low risk aversion.
Fallen_Hero
Member
Vanguard is not letting me put more money into one of the index funds. I initially put in the minimum amount of $3000 a few months ago and I want to put in the remaining $2500 for the year. However, it is telling me to contact them for more information.
Anyone know what is going on?
Anyone know what is going on?
Perhaps I am confused on something here, but you still would be selling stock if you had a target date fund and had to sell off a chunk of it for income. Why wouldn't it be better to have your bonds and stocks in separate funds so that you can avoid taking a huge loss on the sale of your stocks (the stocks in the target date fund) by selling a portion of your separate bond fund?
It seems to me that you will be better off financially if you retain control over the sale of specific asset classes.
I know some funds have repeated sell limits. Could this fund have a repeated buy limit? Is it the same fund? If neither is the case, I am not sure whats going on.
The_Inquisitor
Member
I am in 3 separate vanguard funds putting bimonthly buys of 50 into each. I don't think that's the issue.
On the contrary, I am a very risk averse investor. I don't really take risks. I buy assets that make profits and hold for the long term. There is no risk there, there is no emotion.
Financial decisions absolutely should be made with cold calculation and not emotion.
If you are tempted to panic sell at a downturn it is a sign you either don't understand the assets you own, or you own shitty assets. If you own stock in a company that makes 15% profit, why would you sell it if the stock price goes down? You know it makes a profit, why does the instantaneous valuation matter at all to you? If you know a company makes a decent profit and the price goes down, you should be buying more of it.
People need to learn that the quote price on an equity is meaningless if you are a long term investor unless you are planning on buying more.
If the fund has rebalanced, it would already have sold bonds and purchased stocks. Admittedly, given that rebalancing probably doesn't happen frequently, you're still probably better off with your own individual funds.
You seem to be missing what I'm actually saying. You don't make financial decisions in the throes of emotion, but you must take emotions into account. Otherwise you fall into the classic Spock problem, where he comes off as a goddamn idiot because he always forgets that other people have emotions and fails to account for them in his "logical" predictions and decisions.
Zaraki_Kenpachi
Member
Alright, they match after 1 year of employment so its just my first year I was unsure if I was missing anything. Are there much difference between Roth providers?
My company seems to want you to set up an appointment with an advisor to open accounts. Is it usually free for first visits? I know some advisors charge fees just for meeting, others for commission or both. Debating whether to get an account with my employer or vanguard since I think I'll just do index funds from them. Just want whatever is cheapest. Its confusing if they even offer Roth's (I would think they have to) but just talk about rollovers when I search their site.
1. Go for employer's match if possible. Free money on the table for you if there are no difficulties in managing the account yourself. Check for load fees, expense ratios, and any other extra expenses.
2. Fund (Roth) IRA.
Zaraki_Kenpachi
Member
Is there much difference between Roth providers or they're all the same pretty much?
A Roth IRA is a Roth IRA. However, some companies charge fees to maintain the Roth account (American Funds) and some do not (Fidelity, Vanguard). Be sure to get the full story on what fees you owe vs. any the company is covering for you.
Fallen_Hero
Member
It is the recommended fund "Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)". I have not sold anything either.
Zaraki_Kenpachi
Member
OK, that's what I was wondering. I'll call my company to see I'd they even offer otherwise I'll use vanguard. Is vanguard exclusively online I guess or that and phone? I'll have to see if they'll let me invest by promising withdrawals rather than an initial lump. It will take a couple months to jump in other wise. Thanks for all the help guys.
I am strictly speaking in terms of selling shares of your fund for income in retirement, meaning that you are not rebalancing, you are simply selling. That is where I see the downside to target date retirement funds. I don't have an issue with the automatic rebalancing of target date funds
Zaraki_Kenpachi
Member
I have one final question but more to make sure I'm not missing anything... It seems I can make Roth or tax deductible contributions to my 401k so should I just use that instead of opening a Roth? People seemed surprised at the expense ratios for the index funds in my plan and they seem cheaper than vanguard unless I'm reading something wrong? I'm assuming a normal roth gives me more flexibility but for now should I not care and worry about fees instead? Vanguard seems to be 20+ basis points in gross fees and my plans are only 4-7 basis point gross.
The advantage of Roth is that your earnings (i.e. dividends, capital gains) are tax-free. There are no withdrawal penalties aside from the age requirement. In traditional, you have to withdraw by age 70 or face a pretty stiff financial penalty. However, you cannot deduct your Roth IRA contribution from your yearly tax returns.
Choosing between traditional and Roth is where things get political. If you think your tax bracket will still be the same when you retire and would enjoy tax-deferred benefits/deductions now, then open traditional. If you think your tax bracket will change (i.e. pay more taxes) when you retire, then open Roth. You will find discussions of some highly paid people opening backdoor Roth IRAs (convert traditional to Roth) when you search the internet.
President Obama's recent proposal regarding myRA is basically a Roth IRA on training wheels. When your contribution exceeds to $15,000 for that account, the account is rolled over to a Roth IRA.
Vanguard expense ratios are the cheapest when you get to Admiral Shares for their mutual funds. Are you comparing mutual funds or ETFs?
Zaraki_Kenpachi
Member
I have no idea what it will be in retirement so I assume Roth is better. My wages should increase as times go on. I know the difference between them, I'm asking about contributions. I don't see anything listed on the shares but since it's for an employer 401k I assume it's a mutual fund and not an ETF but I don't know for sure. I didn't look at admiral shares, just normal for now but ate they really cheaper than 4-7 basis points for gross ratio? That seems unlikely.
Edit: Hmm, guess I was looking at the wrong index funds. Definitely some of the vanguard ones are around 5 basis points.
What funds are you looking?
You can list them here, so we can help you better.
Zaraki_Kenpachi
Member
For vanguard? Just their us and international index funds. Nothing too fancy.
VTSMX or VTSAX?
VGTSX or VTIAX
What are your employer's in comparison?
Your main concern is costs (i.e. expense ratios, loads, commissions, redemption fees, purchase fees). Keep your costs low, invest an index fund, and you'll be OK.
Chasing after performance is not a guarantee.
Zaraki_Kenpachi
Member
I was looking at VTI just now, I forget exactly off the top of my head. For vanguard since the index funds yesterday seemed closer to 20 basis points. And the employer ones are unitized commingled funds that I listed above so I dont think you can look it up. Large cap growth index with 7 basis point fee, International large cap index with 10 basis point gross, international small cap index with 16 basis point gross, etc. The s+p index has a 4 basis point gross.
They're all index funds, I guess I'll see if there's any extra fees or I'll just point lowest gross I guess.
Edit: I don't see any mention of fees besides gross ratio for the employer one. Does that seem normal?
RumblingRosco
Member
-
I don't have a 401K, so I can't comment on what is normal.
Look for an active investment management fee. Something doesn't seem right here as everyone is trying to beat Vanguard for costs.
These threads may help. Gross Expense Ratios seem like a way of masking the true funds' costs:
http://www.bogleheads.org/forum/viewtopic.php?t=63679
http://www.bogleheads.org/forum/viewtopic.php?t=106437
Zaraki_Kenpachi
Member
There can't be an active management fee, they're index funds. They're passively controlled by its nature.
I'm listing the gross ratio as basis points... Its .07% gross fee which is 7 basis points. 1 basis point is .01%.
Then why do you have to meet an adviser to invest? Something is not right here.
There's basically no way a 401k will beat an IRA as far as investment costs. There are going to be fees by the plan custodian. Double-check the forms they've given you; it should be on there somewhere.
Zaraki_Kenpachi
Member
That's not the employee plan, I do that online. I couldn't find a place to enroll for a separate Roth account from my employer online, it wanted you to go to a branch or have an advisor contact you for that. Like if you banked with them and wanted to open up a Roth, I couldn't find a way to do that online. A lot of actual mutual funds I get a nice reduction if they are actively managed so I wanted to see if for a personal Roth they had something also. I didn't realize at the time that you can choose between traditional and Roth contributions. Earlier ones I've seen were traditional contributions only.
I was going to say, the best you could ever achieve is parity, if the employer covers all costs but the fund expense ratios (as my employer does). It really sounds like something is missing from the picture.
Am I right that there is an active management fee somewhere?
I've also heard of annual fees as well just to have the 401K open.
Zaraki_Kenpachi
Member
Only thing I can access is a sheet that lists snapshot, total returns, ratings & risk, portfolio, and nuts &bolts as the sections. I literally see nothing besides the gross expense ratio. This is under "fund information" tab of their website BTW.
Randolph Freelander
Member
My employer covers it plus eats some* of the expense ratios. Sometimes it pays to work for a large bank, I guess.
*Limited to the managed funds (typically cutting the expenses in half), which I'm not in. Index funds' already low expenses are not reimbursed.
Zaraki_Kenpachi
Member
So do you use a separate account or your 401k for your index? Or do you not invest past employer match? I work for one of the major banks and seems we get the same discounts. Does yours have any fees outside the gross for the index funds?
Randolph Freelander
Member
I'll have to dig into the fees further, to be honest. But I max out my 401k to the IRS personal contribution limit. My top income falls into the 28% bracket, so I'm avoiding that by being aggressive on pre-tax contributions. At the moment, I'm not doing a Roth, but I will start one after completing my home purchase this year. For the time being, everything extra is just going into cash savings.
After the home purchase, I'll open a Roth while simultaneously rebuilding my cash savings, then also look at adding ETFs with surplus funds.
Zaraki_Kenpachi
Member
Oh OK, so you have no IRAs and just max out the 401k contributions? I guess I'll call the 800 number tonight to see of there's more fees but I would think they have to disclose that somewhere besides forcing you to call.
And yeah. My tax bracket isn't as high as you so I feel like Roth is better. Seems to be the conventional wisdom for people early in their career.
Randolph Freelander
Member
Yes, on the 401K, the bet I'm making is essentially that the marginal rates of the future will not significantly differ from those of right now (implied of course is also that we will still have marginal rates, not some ridiculous flat tax). Avoiding 28% now is simply preferable to avoiding 10% on first X $ of income, then 15% on the next Y dollars, etc., when I retire. I will open a Roth once I have the excess funds to do so, but it's simply a lower priority investment vehicle given my present top marginal rate.
Regarding fees, my plan has plenty of literature which I've just skimmed over again at a high level. It covers administrative expenses, individual expenses, and of course reimburses or otherwise waives some of the managed fund expenses, as I mentioned earlier. I'm not seeing anything on additional fees that I need to be wary of.
Zaraki_Kenpachi
Member
OK, so should be the same essentially as vanguard then. Assuming we work for different banks, I doubt there is any difference since other aspects were the same. Can't wait until I get employer matching next year.