RustyNails
Member
Not Vanguard but I think fidelity allows you too open invest as low as $200.
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How to Invest for Retirement
- Thread starter Piecake
- Start date
I use Fidelity. The also have a boatload of "no trade fee" ETFs.
Wow thank you for the quick reply guys. Guess I will look into ETFs with Vanguard.
And I originally had a Fidelity account, but for some reason they flagged my account for fraud when I opened it--so fuck 'em.
Randolph Freelander
Member
It's close enough. Say a couple earns a combined $120K per year before taxes. Let's also say retirement is 30 years away. In 30 years at 2% inflation, that's roughly $217K, and a common(?) suggestion is having enough for 80% income replacement at retirement, which would put your required retirement income that first year at roughly $174K.
If you have $3 million stashed away, and if you allow inflation to continue at 2% while allowing a rate of return at 5% on your investments (perhaps too aggressive for a retiree?), you'll have enough to last 25 years. Social Security, if not gutted, will help you last longer, Personally, I take the pessimistic view and do not include it as part of my own planning. Of course, if your standard of living is higher or lower, you'll need to adjust your savings plan accordingly.
(This high level analysis does not factor in booms or busts, so of course actual results may vary.)
Edit: actual numbers used. Earnings are market returns, expenses are the retirement draw-downs for "income." Note: for simplicity, earnings are based on the beginning balance. In actuality, the earnings will accrue over the course of the year as the balance slowly depletes, which would reduce the actual earnings slightly. Also, as mentioned, this does not account for booms or busts and holds both inflation and returns steady at 2% and 5%, respectively.
Code:
Year Beginning Earnings Expenses Ending
1 3,000,000.00 150,000.00 ($173,890.71) 2,976,109.29
2 2,976,109.29 148,805.46 ($177,368.53) 2,947,546.23
3 2,947,546.23 147,377.31 ($180,915.90) 2,914,007.64
4 2,914,007.64 145,700.38 ($184,534.21) 2,875,173.81
5 2,875,173.81 143,758.69 ($188,224.90) 2,830,707.60
6 2,830,707.60 141,535.38 ($191,989.40) 2,780,253.58
7 2,780,253.58 139,012.68 ($195,829.18) 2,723,437.08
8 2,723,437.08 136,171.85 ($199,745.77) 2,659,863.16
9 2,659,863.16 132,993.16 ($203,740.68) 2,589,115.64
10 2,589,115.64 129,455.78 ($207,815.50) 2,510,755.92
11 2,510,755.92 125,537.80 ($211,971.81) 2,424,321.91
12 2,424,321.91 121,216.10 ($216,211.24) 2,329,326.76
13 2,329,326.76 116,466.34 ($220,535.47) 2,225,257.63
14 2,225,257.63 111,262.88 ($224,946.18) 2,111,574.33
15 2,111,574.33 105,578.72 ($229,445.10) 1,987,707.95
16 1,987,707.95 99,385.40 ($234,034.00) 1,853,059.34
17 1,853,059.34 92,652.97 ($238,714.68) 1,706,997.62
18 1,706,997.62 85,349.88 ($243,488.98) 1,548,858.53
19 1,548,858.53 77,442.93 ($248,358.76) 1,377,942.70
20 1,377,942.70 68,897.13 ($253,325.93) 1,193,513.90
21 1,193,513.90 59,675.69 ($258,392.45) 994,797.14
22 994,797.14 49,739.86 ($263,560.30) 780,976.70
23 780,976.70 39,048.84 ($268,831.51) 551,194.03
24 551,194.03 27,559.70 ($274,208.14) 304,545.59
25 304,545.59 15,227.28 ($279,692.30) 40,080.58I agree that if you don't take into account social security that that is probably close if you plan to live on 100-120k dollars in retirement. However, I think it extremely unlikely that social security benefits either go away or change dramatically. The elderly voting block is just too powerful and will get more so thanks to the baby boomers. And they will definitely want it thanks to 401ks.
I am all for being prepared for retirement, but saving too much just means that you are going to miss out on doing this now. I would consider investing for retirement with the idea that SS won't be around is saving too much.
That 60k calculation was not factored in for inflation so that should also be quite a bit higher in 30-40 years.
Like you I didn't have the 3k and looked into the ETFs with Vanguard but even then the minimum was 1k to start. This was just after this thread started maybe six months ago. Let me know if you have a different experience as I'd like to get in on that.
I have always been a bit wary of annuities, but this actually seems like a decent deal (if you live long enough)
http://www.bloomberg.com/news/2014-07-03/a-new-way-to-stave-off-the-old-age-cat-food-diet.html
I am honestly not too knowledgeable on annuities since they always seemed like an overcomplicated mess that are designed to benefit the insurance companies. This one just seems to be a bet on how long you live. If you live until you are 90, it seems like a fantastic deal. Anyone have a more informed opinion on this?
http://www.bloomberg.com/news/2014-07-03/a-new-way-to-stave-off-the-old-age-cat-food-diet.html
I am honestly not too knowledgeable on annuities since they always seemed like an overcomplicated mess that are designed to benefit the insurance companies. This one just seems to be a bet on how long you live. If you live until you are 90, it seems like a fantastic deal. Anyone have a more informed opinion on this?
Assuming average market returns on the 20 years between 60 and 80, that $125k should be $500k at least by that time, so the breakeven point for that particular annuity would be closer to 20 years than 10.
Of course annuities seem like they are designed the benefit insurance companies, the whole reason insurance companies write annuities is that they believe they will pay out less than they make. Which is not to say they don't have their place. If someone is right on the borderline of not having enough money for retirement, annuities like the above can be useful for minimizing the risk of a few bad years in the market putting you in a financially untenable situation to retire.
Annuities will always return (substantially) less than the market on average, because the insurance company is taking up the risk. This can be useful for people who genuinely cannot afford the risk though, you just have to be clear on what you are paying them for.
The easiest way to look at this is to remember that ALL insurance is going to have a profit margin for the insurance company. So they are going to make money on these policies. Now thats not to say that all insurance is bad. They definitely have their place in providing secure income/protections etc. The money that is made on these policies is probably due to the probability that not all people are going to make it to 80 making those annuities useless.
I agree with iamblades that if you don't have a proper retirement fund and a depression in your 70s could wipe out your retirement account then an annuity could be a very smart idea to make sure you have something to pad your SS income since you don't want to be living off that alone.
Eh, I think it is a bit much to compare it to the return that a 100% stock portfolio gets. I think a better measure of its worth would be to measure it against the theoretical returns of your portfolio. I dont know about you, but I do not plan to be 100% stock when I am 60, and certainly not when I am 75.
Hell, it might be better to treat it like a bond, because it definitely is a conservative investment. It is a hedge against stock market uncertainty and bought for safety. In that light, I think the investment looks better.
Personally, I like the idea of getting paid a guaranteed 45k a year. Hell, I would totally be in favor of the government revoking 401k tax breaks and putting that money towards SS so that we can get 45k a year in SS benefits. Not having to worry about your retirement funds is a huge bonus and the main reason why I am investing - so that I don't freak out when I am 50.
anonymous_abc
Member
Question for BritGAF
I have roughly 2 grand in a building society account in the UK earning jack in interest.
In the medium term what would be good options to move the money to? I have no immediate need for any money in the UK and I don't see that changing any time soon.
I have roughly 2 grand in a building society account in the UK earning jack in interest.
In the medium term what would be good options to move the money to? I have no immediate need for any money in the UK and I don't see that changing any time soon.
GrooveCommand
Member
Can anyone explain why mint.com tells me my 401k portfolio is vastly under-performing compared to the S&P 500, but when I go to google, yahoo, etc it says that my portfolio has been outperforming the S&P 500?
Also, does anyone have any suggestions for my 401k? I have it through my employer which uses Fidelity NetBenefits. Any suggestions are appreciated! I am pretty young so my investment style is high risk/high growth.
Also, does anyone have any suggestions for my 401k? I have it through my employer which uses Fidelity NetBenefits. Any suggestions are appreciated! I am pretty young so my investment style is high risk/high growth.
This thread has gotten my jimmies all rustled lately and I'm looking to invest. The only problem is I have no idea what to do, as I currently have no investments. I've got about 10k in savings, and after reading through this thread the index funds seem like a valid way to go.
So what's the next step? Do I hire a broker? Can I walk into a bank and get someone to help me set that up? Is there a website I can go to where I can get the ball rolling on this?
I'm super green in this area, and a lot of the language that's been thrown around in earlier posts seems to be based on the assumption that the people reading it know their asses from their elbows when it comes to this stuff. I do not.
I appreciate all of the information that everyone has contributed to this thread. I want to start growing my money, and if someone could point me in the right direction I would be forever thankful.
So what's the next step? Do I hire a broker? Can I walk into a bank and get someone to help me set that up? Is there a website I can go to where I can get the ball rolling on this?
I'm super green in this area, and a lot of the language that's been thrown around in earlier posts seems to be based on the assumption that the people reading it know their asses from their elbows when it comes to this stuff. I do not.
I appreciate all of the information that everyone has contributed to this thread. I want to start growing my money, and if someone could point me in the right direction I would be forever thankful.
RustyNails
Member
I wish I could invest in Islamic bonds which just launched in the UK. I hope they get offered in the US. Right now I have no bonds in my portfolio, both investment and retirement.
chaosblade
Unconfirmed Member
I'm probably a lot less knowledgeable than most of the people active in this thread, but here are my thoughts. For one, keeping some money in a lower risk savings account is not a bad idea. I wouldn't invest all of it, keep some savings.
To start I'd say make sure you're taking advantage of your employee benefits and contributing to your 401k. The match from your employer is essentially free money. When you do this you should also check your allocation, it may (read: probably will) default to something with higher fees and a similar or worse return than an index you could use instead.
Talking to a broker to open an account would be a lot more personal than dealing with this thread, and they could give you some specific advice based on your own situation more quickly. But you can do everything online with Fidelity or Vanguard (and I've seen Schwab recommended too) and not have to deal with any potential salesmanship, but you're going to be more or less on your own apart from this thread.
anonymous_abc
Member
The salesmanship aspect is one of the things I was wondering about. I'd imagine it would be in a broker's best interest to try and get me to invest as much as possible, and I can be easily swayed.
On the other hand I don't think I'm confident enough to go it alone with an online only option.
It's all rather intimidating, but still not more frightening than the idea of trying to retire on social security alone.
So how does one go about finding a good broker?
Note: I'm far from an expert on investment...
Honestly, you don't really need a broker. Vanguard does make it pretty easy to follow what is going on. The only thing I ever knew was to invest in index funds. I actually use the four stocks/bonds listed in the OP without any trouble... IMO - keep some money in savings for a rainy day (how much really depends on you and your lifestyle), invest ~ 90% (depends on how much risk you want) in index stocks, the remaining ~10% (again depends on how much risk you want - bonds are less risky, Piecake doesn't favor putting much here, but others disagree...) in index bonds. You want a mix of local and international stocks and bonds too so you have all of your bases covered. So basically (assuming you are in the US):
90% Stocks (Index Funds, ~70% US stocks, the rest into International Stocks)
10% Bonds (Index Funds, again ~ 70% US bonds, the rest into International bonds)
Vanguard will tell you the % of stocks to bonds you have so you only need to figure out how much to divide your cash between US and International). For example, say you want to put $5,000.00 in Stocks at the 70% - 30% US - International split. $5,000.00 * 70% = $3,500.00 into US Stocks and $5,000.00 * 30% into International Stocks.
This is pretty much how I've had my stocks in Vanguard for ~10 years, by myself with practically no experience at all...
I only have (limited) experience with Vanguard so I can't tell you if any other place like Fidelity is the same or not...
An online discount brokerage will give you every bit the same amount of service a traditional broker would until you have in the tens or hundreds of thousands of dollars invested at the very least. Not like you are going to be able to set up some personalized investment strategy when you have enough money to meet one, maybe 2 funds minimum investment requirement. And if you go ETFs, transaction costs will eat up a large portion of your capital if you try to do anything fancy.
The end result of going to a brokerage with a small amount of money is probably that your money gets dumped in a target date fund somewhere and you will end up paying your broker most of your profits for the first couple years at least for helping you make that decision. That or you end up with a scumbag who uses your money to gamble on growth stocks. It's a waste of money for the vast majority of individual investors, especially those just starting out.. Paying a broker is for when you have enough money that it becomes difficult to decide what to spend it on and you need ideas for where to dump your money.
When you just have a few thousand dollars, there is no decision to be made, index funds are the best option. The most varied and lowest cost index fund you can buy at whatever discount brokerage you choose.
Also don't be afraid to use the customer service at the discount brokerage you choose, you will find that they can provide just as much advice to you as an in person broker would be able to at a much lower cost. Really though, for your first investment purchase, I really wouldn't overcomplicate it. Just get in there and buy the most diverse index fund you can.
RumblingRosco
Member
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Finally got my TFSA opened.
There are a couple of commission-free ETFs (buying and selling) that I have access to, should I consider these or just go with index funds?
Here is the list:
https://www.virtualbrokers.com/contents.aspx?page_id=99
There are a couple of commission-free ETFs (buying and selling) that I have access to, should I consider these or just go with index funds?
Here is the list:
https://www.virtualbrokers.com/contents.aspx?page_id=99
chaosblade
Unconfirmed Member
It's less about investing as much as possible and more about pressuring you into investing in things that may benefit the broker more than it benefits you like iamblades said. Just as an example, earlier this year I actually moved some money my grandparents had been saving up for me through Edward Jones to a Vanguard account. Edward Jones had a little of my money in an index fund and most of it riskier, managed growth funds with high expense ratios.
I didn't really intend to recommend a broker with that statement. By more personalized I mean they are going to ask the questions that could help you make some of your decisions, like whether to go with a traditional or Roth IRA, and how to setup your allocation. There isn't really a one-size-fits-all approach, it's going to depend on your personal needs and adversity to risk.
There are index funds in that grouping.
In particular you want to be looking at:
CLU - iShares US Fundamental Index ETF
CIE - iShares International Fundamental Index ETF
HXS - Horizons S&P 500® Index ETF
VIOO - Vanguard S&P Small Cap 600 ETF
That said none of those have great expense ratios, so it might be better to just bite the bullet and pay the transaction fee to be able to buy something better.
I'd suggest something like ITOT (which I'm surprised is not on that list given all the other iShares offerings) or VTI for US exposure and something like VEU for ex-US equities. Being US traded equities means you may have to consider hedging against the currency risk, but for long term investing in equities (not in fixed rate instruments like bonds of course, you would definitely want to hedge those) it really shouldn't be an issue.
Neffarias_Bredd
Member
I just started working at a huge mutual fund that gets mentioned a lot in this thread.
Seriously, give one of them a call. There are people who work there and aren't getting paid commissions to help people like you.
Thank you for your help.
Vanguard Canada has a couple of offerings:
https://www.vanguardcanada.ca/individual/etfs/etfs.htm
Would VUN or VUS be similar to VTI?
It looks like it. I really can't answer whether it would be beneficial to you go get the Canadian hedge version or not though.
Over the long-term, hedging really doesn't matter much because you can't estimate how the currency values will go. As you reach closer to retirement it might be worth switching to a hedged fund when your currency is in a position where you want to protect its value.
e.g. XXM.B (unhedged) is outperforming XXM (hedged). (as Canadian examples)
Thank you draetenth, iamblades, chaosblade, and Neffarias_Bredd. I'm going to check out the virtual brokers this weekend and see what I'm comfortable putting away. I've been procrastinating on this for too long and having all you wonderful GAFfers to come to is really helping to get the ball rolling.
Thanks guys.
Thanks guys.
Thanks.
If I want to split my investments, should I stay with Vanguard Canada? They don't seem to have a really international option for a secondary ETF.
Just tried buying some, it says my buying power is too low. I'm guessing there's a minimum investment required; How can I verify that?
RustyNails
Member
I just found about this website: www.futureadvisor.com
It analyzes your portfolio to check if you are paying too much in fees, overlapping funds, etc and cleans your portfolio based on your risk tolerance and retirement age. It works like Mint, by importing your account information and running analysis on it. You can also import your investment accounts too (vanguard, fidelity, etc). Give it a try.
It analyzes your portfolio to check if you are paying too much in fees, overlapping funds, etc and cleans your portfolio based on your risk tolerance and retirement age. It works like Mint, by importing your account information and running analysis on it. You can also import your investment accounts too (vanguard, fidelity, etc). Give it a try.
I just tried it and it told me to sell all of my S&P500/Total US Market mutual fund holdings (which have fees under 0.10%, so it wasn't because of that)..
I got an F on asset allocation from these guys.
Seems odd, I remember offering sukuks to clients in Europe at least 3 years ago, I thought Islamic finance was more developped in the US.
chaosblade
Unconfirmed Member
Considering FutureAdvisor is advertising their .5 expense ratio actively managed funds right there on the front of their site, I don't really trust them to rate my portfolio that they have zero involvement with. They probably want you to buy their stuff/get your money.
rokkerkory
Member
marry someone rich, it's the new thing
thoseAREmySHOES
Member
Obviously it's an F for fantastic.
RumblingRosco
Member
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It is true that over the long term currency hedging should be less important in equities, but it isn't because you can't predict it, it is because due to the nature of equities, currency fluctuation over a long enough time period gets factored into the price of the equity. If the currency depreciates, it causes the price of equities to rise.
This is why hedging is mandatory for fixed income assets though, as the bond yield doesn't increase if the currency depreciates as an equity valuation would.
As for whether to hedge stocks against currency risk, I don't do it at all, but it's less of an issue being in the US, as my exposure to foreign currency is both smaller and more spread out, but in general I find it results in paying higher expense ratios for less average return. If I was a Canadian concerned about exposure to USD, I'd probably hedge with an Ex-US equities fund instead of buying a currency hedged US fund.
They gave me an A+ on Fee and tax efficiency though!
ETFs won't have a minimum (besides the price of a share). Mutual funds have minimums, and it should say on the information page of that fund.
What specific one were you looking at?
^^ ETFs are just like any other common stock, you can buy a single share if you really want to. My personal rule for minimum investment amounts is that the transaction fee should be less than .5% of the total investment. So if your brokerage charges a $10 transaction fee, the minimum I would buy at a time would be $2000. See if your brokerage offers any fee free ETFs, and I'd probably start out with those at least until you build up enough captial to where transaction costs are insignificant.
With that in mind, make sure to find what ETFs are offered with no commission fee from your online(?) broker. If they don't offer any ETFs of that sort, find a new one!
edit: oops, didn't see you mentioned that.
Fidelity has a lot of iShares ETFs with low expense ratios.
VUN from Vanguard. When I tried buying, it said Offer Refused: Buying Power Too Low or something like that.
Just got done opening an account with $1000, so I assume my experience was not different from yours. I spent the last few weeks selling off old stuff (iPhone, XBOX, PS4, etc) to raise money, and it's setup to transfer into a Vanguard 2045 target fund.
When I raise more money I am going to start investing in Index funds with ETFs.
wait what? ... did you try to buy more than your BP allowed? I didn't have any problems at all getting it.
Worth noting that there are plenty of online brokerages where you can start a brokerage account with $0 minimum. Vanguard and Fidelity are great companies, but just because they are who everyone here uses, doesn't mean they are the only option you have. Sharebuilder in particular I've heard lots of positive things about. TD Ameritrade also offers $0 account minimums.
Also worth noting that Fidelity will also waive the account minimum for IRAs if you set up automatic deposits, which may be an option for people who have a decent amount saved up, but not enough that they can move it all into investments immediately without draining their emergency fund.