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[Sain Drevia]

Spoiler

A quick demonstration of the power that expense ratios can have (totally stealing Randalph's thunder here.)

This is a comparison between a lump sum $10,000 investment, growing at 8% for 30 years. One has a .1% expense ratio, the other .5%. (The expense ratio reduces the growth rate.)

Growth Rate	8%	8%
Expense Ratio	0.10%	0.50%
Net Growth Rate	7.900%	7.500%
Investment	$10,000 $10,000
Years	            30	30
		
Ending	$106,146.26 	$94,215.34 
Gain	$96,146.26 	$84,215.34 
Difference		($11,930.92)
Differnce %		-12%

The .5% expense ratio vs. the .1% costs you nearly $12k, or 12% of the return. This was a simple example, but it shows the value in choosing funds with very low expense ratios.

Generally, if you stick to index funds you should be seeing expense ratios in the <.2% range.

The fund you have selected is a good way to get exposure to the full market. If you want to place an emphasis on one segment or another (midcaps, for example) you could add an index that covers that segment of the market to your portfolio; this is called a tilt strategy, IIRC. I don't have a strong opinion here. I like to keep it simple, and also don't have any particular insight into what segments might do better than others in the future, and so I also use the full market index. I have read some argue for a midcap or smallcap tilt, but I wasn't persuaded by it. I think Randalph ran or pulled some numbers a few pages back when we last discussed tilts, might try looking back for that discussion.



If the expectation is that a stock will pay a 50 cent dividend, rather than no dividend, the stock will go up. Likewise, going from 50 cents to 60 cent dividend would likewise push the stock up, as the future returns to the shareholders would increase, reflected in the stock price. All else held equal, of course. (I saw this recently with my own company stock; we increased the dividend after holding it flat for several years, and the stock popped immediately.) I have seen some arguments that a payment does decrease the value of the company in the moment the dividend is paid, but as stock prices are not based on present values but the expected future returns the company will generate, such payments are factored into the market valuation of the stock.

Thanks Ghaleon and TAL for the insights. For the time being, I went all in with FSTVX since I had more than enough to cover the initial $10,000 purchase price. Once my portfolio (and my comfort level) grows a bit I may consider re-adjusting to a 90/10 ratio of US/Intl. index funds.

This is all pretty exciting to be quite honest. I am genuinely much more optimistic about retirement than I've ever been in the past thanks to the discussions you all have had in this thread.

 

[teiresias]

When using retirement projection caclulators, what do people use for their estimated yearly returns just to ballpark? Obviously, one probably wants to use a conservative estimate so as not to get a false sense of security. I've been plugging in either 7% or 8%, but I'm not sure if that's a decent return to assume or too high or too low. I basically pulled that from the rounded down lowest yearly return I could see in one of my fund's return histories.

 

[GhaleonEB]

When using retirement projection caclulators, what do people use for their estimated yearly returns just to ballpark? Obviously, one probably wants to use a conservative estimate so as not to get a false sense of security. I've been plugging in either 7% or 8%, but I'm not sure if that's a decent return to assume or too high or too low. I basically pulled that from the rounded down lowest yearly return I could see in one of my fund's return histories.

The average in the modern stock market era for which we have records (~1912 on), the average return is around 10%. Lots of variation depending on the window you look at, obviously. If you google "average stock market annual return" you'll find some good articles. (Which is basically what I did; I thought it was closer to 9%.)

I use an 8% assumption for my retirement planning. Partly to be conservative, but partly because it implicitly bakes in a point or two for inflation, which I think gets ignored a lot in retirement planning. One could argue for knocking it down another point for that reason alone.

Edit: here's a good historical data calculator for the S&P500.

 

[shadowsdarknes]

If the expectation is that a stock will pay a 50 cent dividend, rather than no dividend, the stock will go up. Likewise, going from 50 cents to 60 cent dividend would likewise push the stock up, as the future returns to the shareholders would increase, reflected in the stock price. All else held equal, of course. (I saw this recently with my own company stock; we increased the dividend after holding it flat for several years, and the stock popped immediately.) I have seen some arguments that a payment does decrease the value of the company in the moment the dividend is paid, but as stock prices are not based on present values but the expected future returns the company will generate, such payments are factored into the market valuation of the stock.

When doing valuations in my security analysis course, the presence of a dividend did not necessarily improve the intrinsic value of the security. That is.. If I remember correctly. I do know that if a firm is consistently paying dividends and the dividends are expected to grow, the present value of those payments may be greater than the actual market value of the stock.

In the example of a company announcing that they will pay dividends, that may push a stock up. Especially in the era of such low bond yields. A nice dividend yield can act as a substitute to owning debt instruments.
Because stocks are up so high right now, the dividend stocks are looking increasingly attractive as a means of income. That may be pushing stock prices up.

But because a dividend is paid out a firm's retained earnings, if it's paying out 50 cents per share, then that's 50 cents * # of shares.

But for a company that is projected to be consistently profitable and growing, this shouldn't be an issue. The stock should still rise in price.

 

[Randolph Freelander]

The entire point of owning a stock is expecting it will go up.
If a stock pays dividends a 50 cent dividend, then the share price drops by 50 cents.

What's driving it up, though.

Everybody wants to focus on the immediate dip in price at the ex-dividend date but wants to ignore how the expectation of that dividend is being built into the stock price leading up to that date. The stock dips in price by the dividend amount, absent other market factors that day. It makes total sense when you realize that you're paying for the dividend amount! You pocketed the dividend and sold the stock to the next guy, who does not have the expectation of that dividend, so he or she is not going to pay as much for the stock. (Or you continued to hold the stock, in which case the dip in the price on the ex-dividend date did not matter to you.) If it did not work that way, again, absent other market conditions, we'd all quit our jobs and execute the easiest, most predictable active investing strategy around -- buy immediately before, sell immediately after.

When you buy a stock, you're buying a share of the company's profits in the future. That share is typically coming to you in the form of a dividend, be that a regular and predictable dividend paid periodically, or via a special dividend paid sporadically, or a combination of both as the case may be. You might not be thinking about the dividend, you might buy with the expectation that that price of the stock will rise, but beneath it all is the future profitability of the company -- and the expectation that those profits will be paid to the investors as they invariably are.

The dividend -- or the sharing of the profits -- is why the stock has a price, it's why you're willing to buy it, and it's why someone else is willing to buy it from you.

 

[StrangerInTheAlps]

Hello Retirement-GAF,

Would anyone be so kind as to give me a little advice? I'm really trying to get my finances straight this year so I can start saving and investing properly, but there are a few(many) things that I'm having trouble moving forward with.

I guess I'll start with the most obvious one for now, but I wanted to see what you guys think.

My situation isn't so rare, but it seems a little complex, and I don't necessarily understand all the factors at play here, so here goes:

*I'm 33 years old, living in Japan, newly wed to a Japanese spouse, and I owe about $20,000 in student debt.

*We want to pay it off ASAP and we have the money to do so, but we're very hesitant because of the high exchange rate - currently 120 yen to a dollar. We're paying 100,000 yen every month on the loan - or the purchasing equivalent of $1000 in Japan - which equals out to about $760 towards the loan after the exchange and transfer fees.

*At this rate, it looks like it will take 2.5 or more years to pay-off, factoring in interest, and assuming the exchange rate doesn't rise or fall.

*The other factor is employment: we both work and make a steady income, but my job - a contract position - will end in 1.5 years and I have no guarantees after that.​

And that's really it. We stand to lose more if we pay it off monthly, but if we pay it off now and the yen gets stronger, it's still a big loss. My gut says we need to eat the loss and pay it off now in case things get worse, but what do you guys think? The yen really took a hit at the end of the year, and I can't imagine Japan will want it to drop more within their power, but the dollar looks unstoppable.

Help guys!

 

[Piecake]

Hello Retirement-GAF,

Would anyone be so kind as to give me a little advice? I'm really trying to get my finances straight this year so I can start saving and investing properly, but there are a few(many) things that I'm having trouble moving forward with.

I guess I'll start with the most obvious one for now, but I wanted to see what you guys think.

My situation isn't so rare, but it seems a little complex, and I don't necessarily understand all the factors at play here, so here goes:

*I'm 33 years old, living in Japan, newly wed to a Japanese spouse, and I owe about $20,000 in student debt.

*We want to pay it off ASAP and we have the money to do so, but we're very hesitant because of the high exchange rate - currently 120 yen to a dollar. We're paying 100,000 yen every month on the loan - or the purchasing equivalent of $1000 in Japan - which equals out to about $760 towards the loan after the exchange and transfer fees.

*At this rate, it looks like it will take 2.5 or more years to pay-off, factoring in interest, and assuming the exchange rate doesn't rise or fall.

*The other factor is employment: we both work and make a steady income, but my job - a contract position - will end in 1.5 years and I have no guarantees after that.​

And that's really it. We stand to lose more if we pay it off monthly, but if we pay it off now and the yen gets stronger, it's still a big loss. My gut says we need to eat the loss and pay it off now in case things get worse, but what do you guys think? The yen really took a hit at the end of the year, and I can't imagine Japan will want it to drop more within their power, but the dollar looks unstoppable.

Help guys!

I really can't be much help since I have no idea what the currency situation is going to look like in the future and I highly doubt that anyone does.

If I was in your shoes, I would treat it like any other debt and ignore the whole currency thing since I would deem that as a random variable that I can't predict or control. If the interest is over 5% I would pay it off. If its 4% and below, I would just pay the minimum. That number will vary from person to person, so you gotta figure it out for yourself.

 

[Darren870]

Hello Retirement-GAF,

Would anyone be so kind as to give me a little advice? I'm really trying to get my finances straight this year so I can start saving and investing properly, but there are a few(many) things that I'm having trouble moving forward with.

I guess I'll start with the most obvious one for now, but I wanted to see what you guys think.

My situation isn't so rare, but it seems a little complex, and I don't necessarily understand all the factors at play here, so here goes:

*I'm 33 years old, living in Japan, newly wed to a Japanese spouse, and I owe about $20,000 in student debt.

*We want to pay it off ASAP and we have the money to do so, but we're very hesitant because of the high exchange rate - currently 120 yen to a dollar. We're paying 100,000 yen every month on the loan - or the purchasing equivalent of $1000 in Japan - which equals out to about $760 towards the loan after the exchange and transfer fees.

*At this rate, it looks like it will take 2.5 or more years to pay-off, factoring in interest, and assuming the exchange rate doesn't rise or fall.

*The other factor is employment: we both work and make a steady income, but my job - a contract position - will end in 1.5 years and I have no guarantees after that.​

And that's really it. We stand to lose more if we pay it off monthly, but if we pay it off now and the yen gets stronger, it's still a big loss. My gut says we need to eat the loss and pay it off now in case things get worse, but what do you guys think? The yen really took a hit at the end of the year, and I can't imagine Japan will want it to drop more within their power, but the dollar looks unstoppable.

Help guys!

I agree with Piecake. As someone who has had to transfer money multiple times over the years there is no way to guess the exchange rate and what may or may not happen.

The US will probably raise interest rates soon, which would be worse off for you. But, it also seems to be factored into the current exchange rates. Least from what I've been watching when I did USD and GBP to AUD over the past year.

Don't know enough about the Japan economy though and how it will impact them.

Do you have any source of income in the US? You are a US national I am guessing? Any retirement accounts in the US?

 

[Deadly Cyclone]

So I finally started looking into this, and logged into my Vanguard account. We go through them at work. Looks like right now I have 70% going into stocks/bonds mix and 30% into our own company stock.

How do you change that over to some index funds like the OP mentions? What should I be doing/looking at?

Thanks

 

[PflargBlarg]

Back when I started I bought into an energy fund which is obviously not doing too well. It's down around 13% at the moment and I'd really like to move that cash into my index funds.

What do you think the possibility is of it recovering into the positive within the next 5 years? It's only got 1500 in it within an unrealized loss of about 200. I'd obviously like to avoid losing that 200 but if I have to wait 5 years it seems like I might as well just eat it?

I dunno.

 

[Makai]

So I finally started looking into this, and logged into my Vanguard account. We go through them at work. Looks like right now I have 70% going into stocks/bonds mix and 30% into our own company stock.

How do you change that over to some index funds like the OP mentions? What should I be doing/looking at?

Thanks

My Accounts -> Balances and Holdings -> Exchange (Exch)

Exchange for VTSMX or for VTSAX if you can afford it.

 

[Piecake]

So I finally started looking into this, and logged into my Vanguard account. We go through them at work. Looks like right now I have 70% going into stocks/bonds mix and 30% into our own company stock.

How do you change that over to some index funds like the OP mentions? What should I be doing/looking at?

Thanks

My Accounts -> Balances and Holdings -> Exchange (Exch)

Exchange for VTSMX or for VTSAX if you can afford it.

Since it sounds like it is a 401k through your work it might be a different set up than the normal Vanguard site since you will likely be limited in funds and options. If you are still confused, let us know.

For index funds, I would look for the funds with the lowest expense ratio and then report back here if you are confused.

Did they automatically stick you into investing in company stock at 30%? That is kinda shady if so...

Back when I started I bought into an energy fund which is obviously not doing too well. It's down around 13% at the moment and I'd really like to move that cash into my index funds.

What do you think the possibility is of it recovering into the positive within the next 5 years? It's only got 1500 in it within an unrealized loss of about 200. I'd obviously like to avoid losing that 200 but if I have to wait 5 years it seems like I might as well just eat it?

I dunno.

Usually the smart play is to take the loss and reinvest it into something better. Hoping it improves just because you don't want to lose isnt really a rational or logical decision. It is an emotional decision because you don't want to admit that you made a poor choice.

As for what will happen to the stock, I have absolutely no idea and I douby anyone here does.

 

[Randolph Freelander]

Alright, we're past the quarter post mark on the year, tax filings are due in a couple of weeks if you haven't already filed.

Here's the markets YTD through March 31

Dow Jones -0.24%
Nasdaq +3.48%
S&P 500 +0.44%
S&P Mid Cap 400 +4.92%
Russell 2000 +3.99%
Vanguard Total Stock Market +1.32%
Vanguard Total International Stock +3.77%

Winners so far: international, small caps, mid caps.
Treading water: large caps.

 

[GhaleonEB]

Alright, we're past the quarter post mark on the year, tax filings are due in a couple of weeks if you haven't already filed.

Here's the markets YTD through March 31

Dow Jones -0.24%
Nasdaq +3.48%
S&P 500 +0.44%
S&P Mid Cap 400 +4.92%
Russell 2000 +3.99%
Vanguard Total Stock Market +1.32%
Vanguard Total International Stock +3.77%

Winners so far: international, small caps, mid caps.
Treading water: large caps.

It's also a reminder not to make snap judgments based on one quarter or even one year of performance. International indexes killed me last year, but have boosted the portfolio so far this year. I decided not to make any major moves away from international for a few years so I could see how things were playing out. So far so good. (But then, it's only been one quarter....)

 

[Randolph Freelander]

It's also a reminder not to make snap judgments based on one quarter or even one year of performance. International indexes killed me last year, but have boosted the portfolio so far this year. I decided not to make any major moves away from international for a few years so I could see how things were playing out. So far so good. (But then, it's only been one quarter....)

That's true. And while true, I'm still always thinking about my allocations. I'm notably light on international. It's not in my Roth at all, but that's understandable since my Roth only has 2 years of funding and I have it all FSTMX, waiting to transition over to their advantage class. My 401K is heavily domestic, with a slight tilt among those funds towards small and mid caps. I like that tilt, but I do often question if I've got the right international exposure, even while acknowledging that domestic large caps are themselves quite exposed internationally, in aggregate.

Anyway, my first quarter company match hit on 3/31, which comes via company stock. I never leave it there, so this time I took it and basically moved it all into international as a token gesture as I continue to evaluate where I want to be. I'll get another company contribution in a day or two, a profit sharing thing not tied to any of my own contributions. I haven't decided what I do with that, but I might split it between my small and mid caps, and possibly a little more towards international, too. It's not going to be sizable enough to do anything jarring to my allocations, so again it's more of a token gesture.

 

[Wellington]

I had signed up for Acorns (https://www.acorns.com/) a while ago thinking it was a cool idea and I'd just let it go on forever without really checking it. For those that don't know, the gist is that it rounds up the dollar amounts you spend on your linked CCs, takes the change, and invests it for you. Similar to BOA's program, only with the market involved. If you wanted to you could contribute much more with a few button taps.

Anyway, I checked it today and I saw I had $89 and had a negative return on the money. My investment allocation was all positives, but I was in the red due to the $1 minimum monthly fee. Cancelled the thing and pulled out my money as fast as I could. An absurd fee for something I could do on my own.

In general I am ok with robo-advisors but the % of the charge I was getting monthly was too much IMO.

 

[LevelNth]

I know there is a lot of talk of 3-6 months of expenses for emergency savings, but don't let these steadfast, catch-all rules discourage you if you don't have this. Each situation is different.

Never forget, liquid cash is most often operating at a loss below inflation, so too much sitting unnecessarily damages your bottom line. Second, be realistic about your job prospects, even though people love to say anyone can lose their job at any time.

Yes, you might. But what is your standing? If you work for a decent sized company at a salaried wage, unless you are terminated with cause, a layoff will come with a severance package. A month for each year employed is often a solid barometer to go by.

 

[Wellington]

http://www.cnbc.com/id/102496157?fb_action_ids=10205892792695022&fb_action_types=og.shares

You need to know this number: $18,433.

That's the median amount in a 401(k) savings account, according to a recent report by the Employee Benefit Research Institute. Almost 40 percent of employees have less than $10,000, even as the proportion of companies offering alternatives like defined benefit pensions continues to drop.

Older workers do tend to have more savings. At Vanguard, for example, the median for savers aged 55 to 64 in 2013 was $76,381. But even at that level, millions of workers nearing retirement are on track to leave the workforce with savings that do not even approach what they will need for health care, let alone daily living. Not surprisingly, retirement is now Americans' top financial worry, according to a recent Gallup poll.

That concept may not have been in the forefront of employees' minds at the start, but problems with 401(k)s surfaced early.

For one thing, employee participation in 401(k) plans never became anywhere near universal, despite aggressive marketing by investment firms and exhortations by employers and consumer associations to save more. A 2011 report by the Government Accountability Office found that "the percentage of workers participating in employer-sponsored plans has peaked at about 50 percent of the private sector workforce for most of the past two decades."

The employees who did participate tended to be better paid, since those people could defer income more easily. The GAO report found that most of the people contributing as much as they were allowed tended to have incomes of $126,000 or more.

 

[Original Famous Ray]

I wish my employer put more into my 401k plan (they put 10 bucks a week). I put in 100 bucks a week myself (I selected Vanguard Lifestrategy Growth as my fund which is solid).

I have about 31k in my Roth IRA which is pretty ok I think. I only make 46 to 50k a year as a doorman here in NYC so I can't complain about my savings at my age (38). Could be better but I'll keep putting in what I can to my Roth IRA and 401k. I always put the max Roth IRA contribution (again at Vanguard).


My dad just retired from his job at the age of 65 but he won't get too much from SS, has only 40k in his 401k and gets a reduced pension from his job. He'll get by but he needs to be a bit frugal. I'll try to educate him as best as I can.

Its pretty scary how little so many folks have as they get close to their "retirement age" whatever that may be. I'll try my best to have a decent amount saved but you can't predict the future.

 

[Wellington]

I wish my employer put more into my 401k plan (they put 10 bucks a week). I put in 100 bucks a week myself (I selected Vanguard Lifestrategy Growth as my fund which is solid).

I have about 31k in my Roth IRA which is pretty ok I think. I only make 46 to 50k a year as a doorman here in NYC so I can't complain about my savings at my age (38). Could be better but I'll keep putting in what I can to my Roth IRA and 401k. I always put the max Roth IRA contribution (again at Vanguard).


My dad just retired from his job at the age of 65 but he won't get too much from SS, has only 40k in his 401k and gets a reduced pension from his job. He'll get by but he needs to be a bit frugal. I'll try to educate him as best as I can.

Its pretty scary how little so many folks have as they get close to their "retirement age" whatever that may be. I'll try my best to have a decent amount saved but you can't predict the future.

Are you part of the union for doormen? If so, do you guys get a pension through the union?

 

[Original Famous Ray]

Are you part of the union for doormen? If so, do you guys get a pension through the union?

Yes, there is a pension through the union but you won't qualify for full pension unless you put in 25 years of work. You'll qualify for partial pension for fewer years but its far less from what I gather. I can't imagine putting in 25 years in the union but I'm set to become the building super in about a year. Live-in supers stay rent free so if I'm good at the job I can save a pretty good amount of money. Again, can't predict the future but I'm about to be put in a fortunate position if I put the work in.

 

[vpance]

The kids are scared of the stock market.

Just 26% of people under 30 are investing in stocks, according to a survey published Thursday by Bankrate.com, a personal finance site. That’s compared with 58% of people between the ages of 50 and 64.

That’s “particularly troubling” because the beginning of a career is the best time to start investing, said Claes Bell, a banking analyst at Bankrate. “The nice thing about any money that you put in then is that it’s going to have so much time to grow,” he said.

Of all of the age groups in Bankrate’s survey, 18- to 30-year-olds were the most likely to cite not knowing enough about the market when asked why they weren’t investing. In fact, 38% of survey respondents under 30 gave that reason for staying away from stocks.

“This is not easy stuff, to carve an extra $100, $200, $300 a month of your income,” Bell said.

Coming of age in the Great Recession has affected 20- and 30-somethings’ relationship with investing in other ways, too. “They’ve seen a lot of turbulence in the stock market and I think it’s understandable that people may be a little bit wary,” Bell said.

http://www.marketwatch.com/story/why-most-millennials-dont-invest-in-the-stock-market-2015-04-09?dist=countdown

 

[Randolph Freelander]

http://www.marketwatch.com/story/why-most-millennials-dont-invest-in-the-stock-market-2015-04-09?dist=countdown

Kids don't have time for index funds, not when there's a new iPhone.

 

[Pimplitosaurio]

Is there a personal finance thread? I would like to invest for retirement, but I think that right now I have to concentrate in getting my head above water first

 

[vpance]

Kids don't have time for index funds, not when there's a new iPhone.

In a roundabout way maybe they are investing, by propping up the price of AAPL. Then they'll be bailed out when mom and dad pass on their inheritance with massive gains from said stock.

 

[Nelo Ice]

http://www.marketwatch.com/story/why-most-millennials-dont-invest-in-the-stock-market-2015-04-09?dist=countdown

I don't know anything about stocks that's true. And I also don't have the extra cash right now to even consider it. Though if I get this new job I may actually be able to do some saving and I'll look into stocks. Also I'm guessing most of my peers don't even begin to think of long term and if they are they don't bring it up. Always see people constantly eating out, doing pricey trips, etc and I'm like how is everyone affording this?!.

Speaking of which reminds of stuff like ignorance of credit cards. Didn't realize until recently how almost everyone I knew used debit or cash and I don't recall ever seeing a CC.
http://www.forbes.com/sites/kateashford/2014/09/09/millennials-reject-credit-cards/

 

[Lumination]

Speaking of which reminds of stuff like ignorance of credit cards. Didn't realize until recently how almost everyone I knew used debit or cash and I don't recall ever seeing a CC.
http://www.forbes.com/sites/kateashford/2014/09/09/millennials-reject-credit-cards/

It's really unfortunate because in a way, people who pay with cash are subsidizing people who pay with credit cards.

 

[ClosingADoor]

I'm reading up on some investments, setting some money away in low risk indexes. But the thing bothering me right now, all these stock markets seem at an all time high. Isn't that a bad time to start investing?

I'm 25 so I won't need the money for a long time, it goes through ups and downs. Just don't want to start at some high and see it all go down fast...

 

[Randolph Freelander]

I'm reading up on some investments, setting some money away in low risk indexes. But the thing bothering me right now, all these stock markets seem at an all time high. Isn't that a bad time to start investing?

I'm 25 so I won't need the money for a long time, it goes through ups and downs. Just don't want to start at some high and see it all go down fast...

Healthy markets are virtually always sitting at all time highs. You want markets to be at all time highs. And you want to keep buying when they are.

I hate it when anyone in the media even mentions that the market is at an all time high, unless they immediately follow it with "water is wet and the pope is catholic."

 

[Nelo Ice]

It's really unfortunate because in a way, people who pay with cash are subsidizing people who pay with credit cards.

I've also found people have had credit cards but royally fucked up their score at a young age. And of course people being fearful of debt or using money that isn't theirs.

And speaking of which I'm now the guy that's like hey if you're gonna pay with debit or cash, just venmo and give me the cash instead. Then I can put it on my card so I can rack up those points.

Like a month ago my cousin just gave me cash for alcohol at a grocery store and I essentially made a $1 for putting it on my card thanks to getting 5x cashback lol.

 

[TangoAlphaLima]

http://www.marketwatch.com/story/why-most-millennials-dont-invest-in-the-stock-market-2015-04-09?dist=countdown

Not terribly surprised by this.

Saw another article on MarketWatch when I clicked over, though, that's pertinent to our discussions in this thread.

http://www.marketwatch.com/story/how-to-use-your-roth-ira-to-transfer-your-wealth-2015-04-09

With a Roth, the minimum distribution is based on the age of the oldest beneficiary at the time of death. The distributions can be stretched out over the beneficiary's life time. In the event there are multiple heirs with a large gap in age, separate trusts can be established to minimize distributions and preserve the assets as long as possible. The trust can skip generations, so the funds can go to grandchildren and great grandchildren; the generation-skipping trust is commonly referred to as a "stretch IRA". Under current law, the tax savings from using a Roth IRA generation-skipping trust can be enormous.

I was talking to my father about this the other day. He's thinking he may name my kids (his grandkids) as the beneficiaries on a few of his Roth accounts (not setting up a trust, just naming them as beneficiaries on select accounts). Seems like a great way to skip a generation and pass inheritance at prolonged tax savings. I hadn't really considered this before, but it makes a lot of sense, given that they'll probably have twice my life expectancy left when my father eventually passes away, which will keep the required minimum distribution low, allowing the principal to continue to grow tax-free as it is slowly drawn down.

 

[Piecake]

Is there a personal finance thread? I would like to invest for retirement, but I think that right now I have to concentrate in getting my head above water first

You can ask here any questions you have here since both are related. You need to actually get your shit in order and be able to save money before you invest for retirement.

I'm reading up on some investments, setting some money away in low risk indexes. But the thing bothering me right now, all these stock markets seem at an all time high. Isn't that a bad time to start investing?

I'm 25 so I won't need the money for a long time, it goes through ups and downs. Just don't want to start at some high and see it all go down fast...

Timing the market is impossible. Do not try it. The quickest way to lose money is to try to time the market.

It does not matter at all that the market is at all all-time high. The market should be at an all-time high the majority of the time. That is what markets do. They go up in the long run. You are investing at an all-time high, but that all-time high will no longer be an all-time high 1,2,5, to 10 years from now.

 

[EarsOfASnake]

I'm reading up on some investments, setting some money away in low risk indexes. But the thing bothering me right now, all these stock markets seem at an all time high. Isn't that a bad time to start investing?

I'm 25 so I won't need the money for a long time, it goes through ups and downs. Just don't want to start at some high and see it all go down fast...

Have a read up on Dollar Cost Averaging, you might find that more applicable.

 

[ClosingADoor]

Thanks for the replies. That seems very logical of course. It's just the feeling that I need to get past since it will be my first investments. Feels like I'm throwing money away now with these interest rates on my bank account so I want to do something.

Putting in the money over time seems like a good idea. Will read up more on it and see if I can find the best fit for me.

 

[GhaleonEB]

Thanks for the replies. That seems very logical of course. It's just the feeling that I need to get past since it will be my first investments. Feels like I'm throwing money away now with these interest rates on my bank account so I want to do something.

Putting in the money over time seems like a good idea. Will read up more on it and see if I can find the best fit for me.

The best way to invest is to just put in a regular amount - what you can afford - and do so with scheduled regularity; automated, preferably, so you don't even have to worry about it. Over time, as others have said, the markets will be constantly setting new high water marks, the moment when it happens to be setting one is not particularly noteworthy. If you invest now, and when it dips, and when it spikes, and when it's flat (by just keeping your investments going regardless of the market movement) your returns will effectively reflect the market trend over time - which is up.

 

[Pimplitosaurio]

You can ask here any questions you have here since both are related. You need to actually get your shit in order and be able to save money before you invest for retirement.

Thanks Pie, I will ask questions later, I can tell you right now that we are trying to correct our course. We used to have a small savings, but I was unemployed for a long ass time while we changed residence and other fun things that like to punch your savings in the dick.

But one question: It's a good idea to save enough money to cover a few mortage payments, or insted do I put that extra to my mortage directly?

 

[Piecake]

Thanks Pie, I will ask questions later, I can tell you right now that we are trying to correct our course. We used to have a small savings, but I was unemployed for a long ass time while we changed residence and other fun things that like to punch your savings in the dick.

But one question: It's a good idea to save enough money to cover a few mortage payments, or insted do I put that extra to my mortage directly?

Yes, it is a good idea to have about 3-6 months worth of expenses in your savings. That amount will include mortgage payments. This is money that will likely be in a checking/savings account that you can reach quickly.

The point is to hedge against any unforeseen events, such as you losing your job, getting sick, car accident, car death, etc. Paying off your mortgage payment more quickly while not having enough liquid savings to cover unforeseen expenses will still fuck you over.

I am comfortable with 3 months. Others need 6. It also depends on your employment, health, and transportation situation. If you are sickly, you can get fired any time, and you are far away from your job and not close to a bus line, well, you might need more than 6 months worth of expenses saved up

 

[Pimplitosaurio]

Yes, it is a good idea to have about 3-6 months worth of expenses in your savings. That amount will include mortgage payments. This is money that will likely be in a checking/savings account that you can reach quickly.

The point is to hedge against any unforeseen events, such as you losing your job, getting sick, car accident, car death, etc. Paying off your mortgage payment more quickly while not having enough liquid savings to cover unforeseen expenses will still fuck you over.

I am comfortable with 3 months. Others need 6. It also depends on your employment, health, and transportation situation. If you are sickly, you can get fired any time, and you are far away from your job and not close to a bus line, well, you might need more than 6 months worth of expenses saved up

Thanks Pie, I will try to get it to 3 months at least, we are thiiiiiiiiiiiis close to have a month of income saved. Our expenses are almost equal to our income(including food, transportation and stuff like that) so I want to eliminate debt super fast.

Sadly, our debt is only our mortage and our car payment, and the car has a bullshit payment system where you can't pay extra unless you pay the equivalent to 3 months(let's say that you pay 1k a month for a car, you can't pay any extra unless you pay an extra 3k, wich to me is bullshit)

 

[Piecake]

Thanks Pie, I will try to get it to 3 months at least, we are thiiiiiiiiiiiis close to have a month of income saved. Our expenses are almost equal to our income(including food, transportation and stuff like that) so I want to eliminate debt super fast.

Sadly, our debt is only our mortage and our car payment, and the car has a bullshit payment system where you can't pay extra unless you pay the equivalent to 3 months(let's say that you pay 1k a month for a car, you can't pay any extra unless you pay an extra 3k, wich to me is bullshit)

I would recommend creating a budget and using something like Mint. That way, you can see what you are spending your money on. When you know that, you are better able to prioritize and can figure out what you would be comfortable with cutting.

You definitely need to increase the difference between expenses and income. The most important aspect of personal finance and investing for retirement is saving. Paying down debt faster is great, but it does nothing for you if don't save that difference once you pay your debt off. You should also be saving while trying to pay down that debt since 3-6 months worth of expenses is vital.

 

[Pimplitosaurio]

Guys, would you consider this money an emergency fund or something else?

Let me explain the background: My wife works for a company that has 3 different savings methods for its employees and makes them save in each of them every month:
1- a small fund that is given back with interest at the end of the year
2- another small fund, but you can withdraw anytime(as long as you have 3 months saved up) They don't give you this one at the end of the year, they keep it until they fire you or you ask
3-a bigger fund, this one is only given to the employee when the leave or when they are fired.

So, between the last 2, there is probably another two months of income or more(the christmas fund had some stupidly high gains last year, who knows about the other two).

Are those emergency funds? I think we might use the second to accelerate debts at the end of the year. But the last one counts as an emergency fund? Or its an investment or something?


Edit: Yeah, we have to change our diff between expenses and income. I'm getting a raise in a month and that will help. We are planing to payoff the car in 2 years(we already made 6 months of payments) instead of 4 and then that mone will go half to retirement and half to an emergency fund

 

[Unknown Soldier]

In a roundabout way maybe they are investing, by propping up the price of AAPL. Then they'll be bailed out when mom and dad pass on their inheritance with massive gains from said stock.

I read this and realized it's literally the best investment strategy I've ever read

 

[vehn]

Do you get some sort of tax break when contributing to an IRA? I'm on mint.com and it says "deduct up to $5,500 off your taxes when you open an IRA today".

When I file my taxes, I don't recall seeing anything where I can say I put in $5,500 into a roth IRA for the year, and it thus giving me a bit of a tax break.

 

[Cyan]

Do you get some sort of tax break when contributing to an IRA? I'm on mint.com and it says "deduct up to $5,500 off your taxes when you open an IRA today".

When I file my taxes, I don't recall seeing anything where I can say I put in $5,500 into a roth IRA for the year, and it thus giving me a bit of a tax break.

IRA: tax break now
Roth IRA: tax break later

 

[Makai]

Do you get some sort of tax break when contributing to an IRA? I'm on mint.com and it says "deduct up to $5,500 off your taxes when you open an IRA today".

When I file my taxes, I don't recall seeing anything where I can say I put in $5,500 into a roth IRA for the year, and it thus giving me a bit of a tax break.

http://www.irs.gov/Retirement-Plans...Savings-Contributions-Credit-(Saver’s-Credit)


They're talking about a traditional IRA, but I got a $1,000 break by contributing to a Roth IRA (I started work just late enough in the year so my AGI was low enough to qualify).

 

[Darren870]

Guys, would you consider this money an emergency fund or something else?

Let me explain the background: My wife works for a company that has 3 different savings methods for its employees and makes them save in each of them every month:
1- a small fund that is given back with interest at the end of the year
2- another small fund, but you can withdraw anytime(as long as you have 3 months saved up) They don't give you this one at the end of the year, they keep it until they fire you or you ask
3-a bigger fund, this one is only given to the employee when the leave or when they are fired.

So, between the last 2, there is probably another two months of income or more(the christmas fund had some stupidly high gains last year, who knows about the other two).

Are those emergency funds? I think we might use the second to accelerate debts at the end of the year. But the last one counts as an emergency fund? Or its an investment or something?


Edit: Yeah, we have to change our diff between expenses and income. I'm getting a raise in a month and that will help. We are planing to payoff the car in 2 years(we already made 6 months of payments) instead of 4 and then that mone will go half to retirement and half to an emergency fund

'
What kind of savings is this? Does she also contribute to a retirement account? Are you in the US?

The only problem with those is that in the event of an emergency you can't actually access them. Eg you get fired, the money still has to stay there since your wife can't take the money out.

Honestly, seems weird and not something I've ever heard of. I am also assuming this is coming with a (high) cost, so you are just better opening your own accounts.

Basically an emergency fund is 3-6 months of cash that you can access at any time. You take your monthly expenses and x it by a number between 3-6. You should be able to get that money at any time.

Now I put my emergency fund into a few different accounts. Some of it is in an offset account for my mortgage (Australia only account) and the other is in Stocks. In the event something was to happen I could access either of those accounts and get the cash in less then a week. Because really there isn't many scenarios where you would need a large sum of money right away. Plus I have a cc anyways.

So those three "savings funds" don't give you that ability to get that money whenever you please. Unless I am reading it wrong, maybe #1 does.

 

[giga]

2014 ira deadline next Wednesday. Buy up bruhs.

 

[Darren870]

2014 ira deadline next Wednesday. Buy up bruhs.

I asked my accountant if I could contribute and she doesn't think I can. Wish she would get back to me though as I will need to make some money appear out of thin air. Oh well.

 

[Josh5890]

I'm reading up on some investments, setting some money away in low risk indexes. But the thing bothering me right now, all these stock markets seem at an all time high. Isn't that a bad time to start investing?

I'm 25 so I won't need the money for a long time, it goes through ups and downs. Just don't want to start at some high and see it all go down fast...

I'm 24 and I started investing in late 2012 with my company's 401K plan. I only put in $18-$20 a week right now since I'm only making $11.50/hour. Next year I will have my bachelor's degree so I can get a better paying job and invest more. Right now I figure every little bit helps.

 

[GhaleonEB]

I'm 24 and I started investing in late 2012 with my company's 401K plan. I only put in $18-$20 a week right now since I'm only making $11.50/hour. Next year I will have my bachelor's degree so I can get a better paying job and invest more. Right now I figure every little bit helps.

It does. My wife and I put in $50 a month into each of our Roth's through college. It adds up and gave us a decent head start by the time I graduated and started really saving. You're being wise.

 

[Nelo Ice]

Every time I read this thread I get confused even when people have answered my questions lol. It's tough trying to get a grasp on all this investing. Of course thanks Piecake and all the others who contribute to this thread. I'm learning a lot of stuff that I probably would have been clueless about otherwise. Of course in general I've learned a lot of useful practical information from these forums.

With all that said here's to hoping I land this job at Costco. If I get it, first thing I'm gonna do is put all the money I can spare into a roth IRA and whatever else I should put money into. Costco along with my other job should hopefully give me enough income to be self efficient and pay for all the bills besides rent. In which case for rent I'm going to try and finally be able to put money towards it so it won't continue to leech away at the savings I do have. Also gotta bring up ynab again since it's made budgeting so much easier.