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[Wellington]

This was a pretty great listen, and I found it surprisingly inspirational. MMM comes across entirely different in person than he does on his site.

It prompted me to run some quick numbers to see how we are tracking as compared to MMM's key principles: live off half your take home, and save 25x your spending. (Or put differently, enough that your spending is 4% of your savings.) I'll do more analysis tonight when I have our spreadsheet in front of me.

The primary question I came away with is around the role of tax advantaged retirement accounts in an early retirement strategy. If I stretch a bit and follow the 25x target, I'd be able to retire well before 59 1/2, when I'm eligible for Roth IRA withdrawals. So in order to actually retire early, I'd need to save up a significant amount outside of IRA and 401k accounts, to serve as a bridge until I'm old enough to access those accounts without penalty.

But that means building up that savings at some point. I could start contributing now, at the expense of either early mortgage principal payments or 401k/IRA savings. Or I could pay off the house in ~10 years and then funnel what we used to pay on the mortgage into a regular, non-retirement account (index funds, naturally), and work long enough to build up the "bridge".

I'm deeply apprehensive about pulling back on retirement savings. But, if I stretch, I would be at or near the 25x goal he described not long after I pay off the mortgage (which is almost the same year our youngest daughter would finish up high school and presumably move out, thus reducing our living expenses further). So following the strategy of saving for retirement using primarily retirement accounts would actually require me to work longer than if I built the bridge in advance.

Dammit. And here I was feeling like I had settled all the major long term savings strategy questions I had. Any thoughts on this subject?

Glad you liked it. I listen to it probably once or twice a month to help me refocus in the way that you describe above. I tend to be an emotional spender at times and listening to things like this in which he stresses how money is not about getting what you want but about buying your freedom really helps me keep me zero'd in. I keep such a tight leash on all of my numbers that it results in a negative, I am doing so well as compared to some of my peers that I find myself letting off of the gas.

I am nervous of going too far the other way as well, I am already pretty sparse when it comes to buying clothes, gear, and basically any non-essential - but being in NYC I am way over the top in going out for food and beers and shit. I drive a Toyota Corolla that I have owned for 10 years as of this past March 31st. I can definitely get something nicer but the last 8 years of not having a car payment have been really awesome.

I didn't realize his yearly budget is 25k... Even without mortgage, my wife and my spending together is at least double that. We don't eat out much, usually only spend on what's necessary, I still drive a car I bought 15 years ago... I suppose wherever he lives is cheaper but I don't think food and regular daily expenses makes up that much difference. Or maybe it does and I'm not calculating it correctly?

Here's his budget.
http://www.mrmoneymustache.com/2014/01/12/exposed-the-mmm-familys-2013-spending/

The real killer is MMM not having to pay for housing. That's a monster sized savings that some of us never even get to enjoy. I admit though, $25k for a whole family is crazy low,

 

[Darren870]

Dammit. And here I was feeling like I had settled all the major long term savings strategy questions I had. Any thoughts on this subject?

I think in the end it really comes down to what your goal is. A lot of people in this thread are 100% into retirement accounts as its all tax savings. I personally am not.

I don't want to wait till I'm 59&1/2 and for some of my accounts 65+ to access my money. It basically means that I have to be in the work force till then. God forbid I get cancer or something else before then. Then what? I saved all that money and have a huge account I can't even have fun with (without getting penalized heavily)?

I personally don't want to be doing what I do in 5 years. I am just about 30 and in 5 years I don't want to be in the mindset that I have to work to work and save for retirement. I've read a lot (a lot!) of books about Financial Freedom. Some say why put all your money in retirement, why wait till your 65 to enjoy life..enjoy it now! While others go the other way, tax benefits, tax benefits, enjoy life after working for 45 years!

So for me I do the following:

1. Pay extra into my mortgage (sometimes double)
2. Contribute 10% of my income into retirement accounts.
3. Contribute 10% of my income into current accounts.

If I have left over for the month then I go down the list again accordingly.

I want to be able to access money in my 30's, 40's and 50's if I need it, not have to wait till I'm a certain age to touch my money.

I'm going to listen to the MMM podcast today. Seems everyone says good things about it here.

 

[Wellington]

I think in the end it really comes down to what your goal is. A lot of people in this thread are 100% into retirement accounts as its all tax savings. I personally am not.

I don't want to wait till I'm 59&1/2 and for some of my accounts 65+ to access my money. It basically means that I have to be in the work force till then. God forbid I get cancer or something else before then. Then what? I saved all that money and have a huge account I can't even have fun with (without getting penalized heavily)?

I personally don't want to be doing what I do in 5 years. I am just about 30 and in 5 years I don't want to be in the mindset that I have to work to work and save for retirement. I've read a lot (a lot!) of books about Financial Freedom. Some say why put all your money in retirement, why wait till your 65 to enjoy life..enjoy it now! While others go the other way, tax benefits, tax benefits, enjoy life after working for 45 years!

So for me I do the following:

1. Pay extra into my mortgage (sometimes double)
2. Contribute 10% of my income into retirement accounts.
3. Contribute 10% of my income into current accounts.

If I have left over for the month then I go down the list again accordingly.

I want to be able to access money in my 30's, 40's and 50's if I need it, not have to wait till I'm a certain age to touch my money.

I'm going to listen to the MMM podcast today. Seems everyone says good things about it here.

OK, some stupid questions:

What's your time line for paying off the mortgage?
How old are you?
What's the interest rate on the mortgage?

I do pay extra into my mortgage but it's literally the last few bucks of the monthly budget that I roll over into my next mortgage payment, and I do it because I have the stupid PMI that I am close to knocking out, after that's done I won't care nearly as much.

You talk about not wanting to lock up money for such a long term but throwing additional money into your mortgage is essentially a long term CD at whatever your interest rate is.

Don't get me wrong, I understand the benefit of being free and clear of housing payments early on and being able to utilize your money for other endeavors. I am also a fan of the time effect of the mortgage payments. Due to inflation, whatever your mortgage payment is today won't be as much value as it will be 10 years down the line.

 

[PflargBlarg]

Right now I use one check a month for bills and the other check goes to spending/saving, so I'm good on that front.

That 4% though is tough. My current spending is closer to 10%. I don't spend needlessly, but for example if I buy 2 plane tickets to visit family a year totaling $600, that already puts me at 4% ($1300*.04*12mo = $624). If I need to do repairs or anything like that I'm going over 4%. And I haven't indulged in any enjoyment yet on this budget (which for me is just the occasional used game or book). Seems impossible.

I believe you're misinterpreting the 4% rule. The idea is that you can retire as soon as you have saved up whatever (annual spending x 25) ends up being. This is based on the assumption that your holdings will on average go up 7% every year, and inflation will eat 3% every year. This leaves you 4% that you can remove every year and live off of in perpetuity.

As you get older you can remove more than 4% every year as you don't need it to last forever since people die

You can read the whole thing here
http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

 

[Darren870]

OK, some stupid questions:

What's your time line for paying off the mortgage?
How old are you?
What's the interest rate on the mortgage?

I do pay extra into my mortgage but it's literally the last few bucks of the monthly budget that I roll over into my next mortgage payment, and I do it because I have the stupid PMI that I am close to knocking out, after that's done I won't care nearly as much.

You talk about not wanting to lock up money for such a long term but throwing additional money into your mortgage is essentially a long term CD at whatever your interest rate is.

Don't get me wrong, I understand the benefit of being free and clear of housing payments early on and being able to utilize your money for other endeavors. I am also a fan of the time effect of the mortgage payments. Due to inflation, whatever your mortgage payment is today won't be as much value as it will be 10 years down the line.

Ahh, well I think it's a little different for me since I'm in Australia (though I'm an American)

We have an offset account here, which is basically a cash account that is tied to your mortgage. Every month when interest is calculated its done from the cost of your loan minus whatever is in that account. In theory it's just an account that pays the same amount of interest as you mortgage (4.44% in my case)

So the missus and I put an extra payment in there every month. We also rent out our spare rooms in our house which covers the initial mortgage payment anyways.

I'm 29 BTW. No PMI, we had 20%.

-----

Listened to the podcast and it was great. I'm going to keep a tighter track on spending and see if we can get to $25k. Our mortgage payments is $22k a year, but it's usually covered by renting out are spare rooms.

 

[James Sawyer Ford]

I think in the end it really comes down to what your goal is. A lot of people in this thread are 100% into retirement accounts as its all tax savings. I personally am not.

I don't want to wait till I'm 59&1/2 and for some of my accounts 65+ to access my money..

This is actually untrue. There are two primary ways you can tap into your pre-tax accounts prior to retirement age:

1. Substantially Equal Periodic Payments - This one is a bit more involved, but essentially you withdraw the same amount each year until retirement. Quite difficult to accurately plan for.

Here's a really good method, however:

2. Roth IRA conversion ladder. If you switch jobs or retire early, roll a portion of your 401K to a ROTH IRA each year (which will cause a taxable event as ordinary income, but no penalty), wait 5 years, then you can withdraw the principal without penalty.

 

[Unknown Soldier]

I have no idea how you'd get 250k in an IRA that quickly, barring stock options or something. But yeah, that'd probably be a decent nest egg.

If you do the math, it's possible to cram about 200k into a 401(k) in just about 5 years of contributing the 15% max from your annual income every year. You can fit a lot of money in there if you literally contribute everything you can and the market has been favorable, which it has been because if you just happen to have started 5 years ago, you would have been right at the valley of the Great Depression and the market has been going up a lot.

 

[Randolph Freelander]

If you do the math, it's possible to cram about 200k into a 401(k) in just about 5 years of contributing the 15% max from your annual income every year. You can fit a lot of money in there if you literally contribute everything you can and the market has been favorable, which it has been because if you just happen to have started 5 years ago, you would have been right at the valley of the Great Depression and the market has been going up a lot.

This has been a great 5+ years to be in the market, for sure, but let's back up and do some actual math.

The max isn't 15% of your income. It's 50%, up to annual limits set each year by the IRS. For the past five years, those limits were 16,500 (2010, 2011), 17,000 (2012). and 17,500 (2013, 2014). (2015 is 18,000, but let's ignore this year.)

Let's say you contributed the maximum over the past 5 years. That puts you at $85,000 total in personal contributions. Let's further say your employer matched about half of it, which may vary. Under this scenario, the employer kicked in $42,500, for a total contribution of $127,500. To get to $200,000 in 5 years, your portfolio will need to average ~18.5% gains per year. (My model gives you 100% of the rate of return for the beginning balance in the year, 50% of the rate of return for the contribution and employer match during the year, holding that your contribution is spread over the entire year. If you front load your contribution, your rate of return on those dollars could be higher.)

Year	Begin Bal	Personal	Employer	Begin Gain	Personal G	Employer G	Ending
2010	 0,000.00   	 16,500.00 	 8,250.00 	 0,000.00   	 1,526.25 	 763.13 	 27,039.38 
2011	 27,039.38 	 16,500.00 	 8,250.00 	 5,002.28 	 1,526.25 	 763.13 	 59,081.03 
2012	 59,081.03 	 17,000.00 	 8,500.00 	 10,929.99 	 1,572.50 	 786.25 	 97,869.78 
2013	 97,869.78 	 17,500.00 	 8,750.00 	 18,105.91 	 1,618.75 	 809.38 	 144,653.81 
2014	 144,653.81 	 17,500.00 	 8,750.00 	 26,760.95 	 1,618.75 	 809.38 	 200,092.89

Incidentally, from 2010 through 2014, the S&P averaged 13.05% returns. Applied to the investment table above, you would have accumulated $175,447, if the returns were smooth, which they were not. Using the actual annual returns, it looks something like this, which is still imperfect because it doesn't control for market prices when your contributions hit.

Year	Market	Begin Bal	Personal	Employer	Begin Gain	Personal G	Employer G	Ending
2010	12.78%	0,000.00   	 16,500.00 	 8,250.00 	 0,000.00   	 1,054.57 	 527.29 	 26,331.86 
2011	0.00%	 26,331.86 	 16,500.00 	 8,250.00 	 (000.84)	 (000.26)	 (000.13)	 51,080.63 
2012	13.41%	 51,080.63 	 17,000.00 	 8,500.00 	 6,847.71 	 1,139.48 	 569.74 	 85,137.57 
2013	29.60%	 85,137.57 	 17,500.00 	 8,750.00 	 25,201.78 	 2,590.11 	 1,295.05 	 140,474.51 
2014	11.39%	 140,474.51 	 17,500.00 	 8,750.00 	 16,000.94 	 996.68 	 498.34 	 184,220.48

 

[Cyan]

If you do the math, it's possible to cram about 200k into a 401(k) in just about 5 years of contributing the 15% max from your annual income every year. You can fit a lot of money in there if you literally contribute everything you can and the market has been favorable, which it has been because if you just happen to have started 5 years ago, you would have been right at the valley of the Great Depression and the market has been going up a lot.

IRA.

 

[Makai]

IRA.

Maybe he did a rollover after leaving his job.

 

[Wellington]

This is actually untrue. There are two primary ways you can tap into your pre-tax accounts prior to retirement age:

1. Substantially Equal Periodic Payments - This one is a bit more involved, but essentially you withdraw the same amount each year until retirement. Quite difficult to accurately plan for.

Here's a really good method, however:

2. Roth IRA conversion ladder. If you switch jobs or retire early, roll a portion of your 401K to a ROTH IRA each year (which will cause a taxable event as ordinary income, but no penalty), wait 5 years, then you can withdraw the principal without penalty.

Those guys at listen money matters did another really good interview with this dude that calls himself the Mad Fientist in which he spends about an hour going through the conversion ladder and many advanced IRA strategies. It's also worth a listen but fair warning, it gets very heady. I rewound a couple of times just to make sure I got a few of the concepts.

http://www.listenmoneymatters.com/advanced-ira-strategies-mad-fientist-ep-120/

I don't have an IRA but hopefully it's helpful to those of you that do have one and want to maximize its impact.

 

[Darren870]

This is actually untrue. There are two primary ways you can tap into your pre-tax accounts prior to retirement age:

1. Substantially Equal Periodic Payments - This one is a bit more involved, but essentially you withdraw the same amount each year until retirement. Quite difficult to accurately plan for.

Here's a really good method, however:

2. Roth IRA conversion ladder. If you switch jobs or retire early, roll a portion of your 401K to a ROTH IRA each year (which will cause a taxable event as ordinary income, but no penalty), wait 5 years, then you can withdraw the principal without penalty.

Okay, not that what you said sounds easy...

But it unfortunately doesn't apply to me. I can't do that, so like I said it depends on how you want to live and what you want out of life.

 

[Wellington]

Ahh, well I think it's a little different for me since I'm in Australia (though I'm an American)

We have an offset account here, which is basically a cash account that is tied to your mortgage. Every month when interest is calculated its done from the cost of your loan minus whatever is in that account. In theory it's just an account that pays the same amount of interest as you mortgage (4.44% in my case)

So the missus and I put an extra payment in there every month. We also rent out our spare rooms in our house which covers the initial mortgage payment anyways.

I'm 29 BTW. No PMI, we had 20%.

-----

Listened to the podcast and it was great. I'm going to keep a tighter track on spending and see if we can get to $25k. Our mortgage payments is $22k a year, but it's usually covered by renting out are spare rooms.

Nice work on no PMI. Your offset account almost sounds like you pay into an escrow account that the bank just takes the money from when needed. Is the escrow account managed by the bank as well?

Sounds like you are in a really good situation!

 

[Darren870]

Nice work on no PMI. Your offset account almost sounds like you pay into an escrow account that the bank just takes the money from when needed. Is the escrow account managed by the bank as well?

Sounds like you are in a really good situation!

Reality is, it's just a savings account linked to the mortgage. I can take anything out of it whenever I want, in fact our cc bill comes from there. It's just the bank calculates interest against it so we don't pay as much towards interest each month.

Yea thanks we are in a good place. We both made a lot of sacrifices and lifestyle changes to get where we are. Its come with stress but we are both happy. We definitely have some great stories cause of it all though! People think we're crazy but we're travelers living the dream.

 

[acksman]

I am trying to help out my parents who have a few decent sized CD's coming due. They were 6% APR ones, yes I was like holy crap as well. They have had them for about 30 years.

Now they are asking what they should do with the money since CD's are horrible returns, yet they want something somewhat safe. I am thinking Bonds, or maybe some sort of immediate annuity. They are in their mid 80's and they live with my wife and I so their bills are almost nothing.

I have a Vanguard account, but wonder if I should open one for them.

I know not the usual question on here, but thought I would ask.

 

[Mr.Mike]

Mid-80s eh? The new Mustang looks pretty cool.

But yeah, bonds seem about right.

 

[acksman]

Mid-80s eh? The new Mustang looks pretty cool.

But yeah, bonds seem about right.

Doh! This would be more a combo Lambo/Ferrari area, I kid! My Moms side of the family is all mid 90's so at least one of them needs another 10 years worth of stability.

 

[Piecake]

Doh! This would be more a combo Lambo/Ferrari area, I kid! My Moms side of the family is all mid 90's so at least one of them needs another 10 years worth of stability.

I would definitely do your own research since I am not familiar with their specific circumstances and I honestly haven't thought a whole lot about investment and withdrawal strategies besides bonds, but I would look into Inflation protected securities (TIPS) and total US bond. and do some sort of combination. What I like about TIPS for retirement is that it protects you from inflation while regular bonds do not. So if we suddenly got some high inflation going on, you would be very glad you invested in some TIPS because the 'regular' bonds would probably have lost (in relation to inflation) money.

 

[acksman]

Thanks for that info Piecake. I thought I would give it a try and see if anyone else was in my situation. Never know.

 

[otakuderek]

Not sure if I'm doing this right. I want to open a Vanguard account to start a Roth IRA to get this retirement train rolling. I'm going with the Total Stock Market Index Fund and putting $3,000 in there to start it. How do you all diversify when you are opening the account since they all have a $3,000 minimum and a $5,500 yearly max?

Edit: Or should I go with the Target Retirement Fund based on my age?

 

[Piecake]

Not sure if I'm doing this right. I want to open a Vanguard account to start a Roth IRA to get this retirement train rolling. I'm going with the Total Stock Market Index Fund and putting $3,000 in there to start it. How do you all diversify when you are opening the account since they all have a $3,000 minimum and a $5,500 yearly max?

The easiest thing to do is simply invest 3k into a Total International fund next year and invest the remaining 2.5k into your total stock market. It make take 2-3 years to get your preferred allocation ratio, but that is not a big deal.

Retirement investing is for the long term. It really doesnt matter if you are not completely diversified for your first year. In fact, by choosing the Total stock market fund you are already VERY diversified. You have then invested in all American companies and many of these American companies do business internationally.

 

[otakuderek]

The easiest thing to do is simply invest 3k into a Total International fund next year and invest the remaining 2.5k into your total stock market. It make take 2-3 years to get your preferred allocation ratio, but that is not a big deal.

Retirement investing is for the long term. It really doesnt matter if you are not completely diversified for your first year. In fact, by choosing the Total stock market fund you are already VERY diversified. You have then invested in all American companies and many of these American companies do business internationally.

Sounds good to me. I was wondering how everyone was doing their diversification.

 

[AP90]

Hi gaf,

I just recently moved 50% of my portfolio from stable to Vanguard Wellington™ Admiral™ (VWENX)

I work for the state and am turning 25 in a few months and was wondering what your thoughts were on my investment. I want to essentially be aggressive enough so that in about 15 years I can put it all into stable which has on average a 1.5% YoY return (stable with my employment is the safest way for me to guarantee my deferred comp, aka retirement nest egg doesn't lose money.) I cannot pull out the money till I am 59.5yrs old.

I was wondering what financial savy people on gaf's thoughts were.

Thanks!

 

[Makai]

Hi gaf,

I just recently moved 50% of my portfolio from stable to Vanguard Wellington™ Admiral™ (VWENX)

I work for the state and am turning 25 in a few months and was wondering what your thoughts were on my investment. I want to essentially be aggressive enough so that in about 15 years I can put it all into stable which has on average a 1.5% YoY return (stable with my employment is the safest way for me to guarantee my deferred comp, aka retirement nest egg doesn't lose money.) I cannot pull out the money till I am 59.5yrs old.

I was wondering what financial savy people on gaf's thoughts were.

Thanks!

That fund is 35% bonds, which is incredibly conservative at 24.

 

[AP90]

That fund is 35% bonds, which is incredibly conservative at 24.

I did some reading online to supplement the sent investment options that came with quarterly summary of my deferred comp and decided it was time to start being more aggressive.

As I have mentioned I am new to the investment world and am paranoid as shit due to the struggle my parents went through when they lost 30-40% of there retirement when the market tanked years back (think around the same time as the housing bubble collapsed in the us).

I am hopeful that Vanguard Wellington™ Admiral™ fund (VWENX)would be a good place to start =)

 

[Randolph Freelander]

Hi gaf,

I just recently moved 50% of my portfolio from stable to Vanguard Wellington™ Admiral™ (VWENX)

I work for the state and am turning 25 in a few months and was wondering what your thoughts were on my investment. I want to essentially be aggressive enough so that in about 15 years I can put it all into stable which has on average a 1.5% YoY return (stable with my employment is the safest way for me to guarantee my deferred comp, aka retirement nest egg doesn't lose money.) I cannot pull out the money till I am 59.5yrs old.

I was wondering what financial savy people on gaf's thoughts were.

Thanks!

Dude, you are way too young to be thinking about 1.5% returns, now or in 15 years. 1.5% isn't going to keep up with inflation. You're 25, you want something more along the lines of VTSAX, with some VTIAX (international) to go along with it. You're not me and I'm not you, but I wouldn't have a dime in stable or VWENX right now.

I did some reading online to supplement the sent investment options that came with quarterly summary of my deferred comp and decided it was time to start being more aggressive.

As I have mentioned I am new to the investment world and am paranoid as shit due to the struggle my parents went through when they lost 30-40% of there retirement when the market tanked years back (think around the same time as the housing bubble collapsed in the us).

I am hopeful that Vanguard Wellington™ Admiral™ fund (VWENX)would be a good place to start =)

A lot of people lost 60%! And as long as they didn't panic, they made it all back and then some. Relax. You're (not even) 25, this is no time to be ultra-conservative, and your fund selections presently are.

 

[Piecake]

I did some reading online to supplement the sent investment options that came with quarterly summary of my deferred comp and decided it was time to start being more aggressive.

As I have mentioned I am new to the investment world and am paranoid as shit due to the struggle my parents went through when they lost 30-40% of there retirement when the market tanked years back (think around the same time as the housing bubble collapsed in the us).

I am hopeful that Vanguard Wellington™ Admiral™ fund (VWENX)would be a good place to start =)

Well, I think an important concept you need to internalize is that the ups and downs of the market do not matter until you actually start withdrawing your money. The next concept is that you are investing for the long term.

Once you understand that, do you think it really matters if the market tanks 20 years from now when you are 45? How is that going to impact your retirement when you are 65? The market will not tank and then stay tanked for 20 years. Markets go up because that is really what they do. Markets are a reflection of the value of businesses and so long as the economy is increasing and expanding so will the market. Well, I guess it theoretically could tank and remained tanked for 20 years, but if that happens there is nothing we can do and we are all fucked anyways.

I would read the OP I wrote and see what you think about it. It sounds like you won't have my opinions on bonds, but that is totally okay. You should do whatever you are comfortable with.

As for your plan to move to guaranteed income in 15 years, one major drawback of that strategy is that your interest rate will not beat inflation. That means that your guaranteed income fund will actually be losing money in relation to inflation.

To be able to do that, switch to a 1.5% interest rate fund in 15 years and sill have enough for retirement will be very hard. Do you have a pension? Because that will make it easier. If you don't, you will basically need to invest a lot of money and invest it all in stocks to have the hope of having enough for retirement with that strategy.

I would play around with this calculator to see how much money you will end up with. I would likely use 5-6% interest rate for the Wellington fund and 7-8% interest rate for the 100% stock fund (and 1.5% for the guaranteed income fund, obviously). This is obviously just an educated guess, but i think it is reasonable. More stocks means a likely greater return. Including bonds will decrease risk and decrease returns.

My philosophy is that since you are investing for the long term time is how we hedge against risk. When time stops doing that, say 15 years before retirement, then you start investing in bonds to reduce risk. You then use those bonds during a market slowdown during retirement and sell them. If bonds go down in a market tank, they will go down a lot less than stocks. I pretty much think that is the reason why we hold bonds.

http://www.daveramsey.com/blog/investing-calculator/#/entry_form

 

[Link]

So last week, I got a very pleasant surprise at work when I received an email telling me my pension had been activated and the initial deposit had been made into my 401(a). This is in addition to my 403(b). I didn't even know I got a pension. It's only 2.5% of my salary, but hey, free money.

 

[The_Inquisitor]

So last week, I got a very pleasant surprise at work when I received an email telling me my pension had been activated and the initial deposit had been made into my 401(a). This is in addition to my 403(b). I didn't even know I got a pension. It's only 2.5% of my salary, but hey, free money.

Be grateful. Most of us don't get that. The only saving grace I have is employee stock purchase once a quarter at at 15% discount of a limited amount.

 

[Link]

Be grateful. Most of us don't get that. The only saving grace I have is employee stock purchase once a quarter at at 15% discount of a limited amount.

Trust me, I'm very grateful. I know how rare it is to get both a 403(b) and a pension plan these days.

I also wanted to ask you guys for some advice. Right now, I have my Roth invested with Vanguard in their Target Retirement 2045 fund (VTIVX). However, I have enough invested to select an Admiral fund. Would you suggest I switch it to something like VTSAX, as mentioned above, or hold steady?

 

[Makai]

I did some reading online to supplement the sent investment options that came with quarterly summary of my deferred comp and decided it was time to start being more aggressive.

As I have mentioned I am new to the investment world and am paranoid as shit due to the struggle my parents went through when they lost 30-40% of there retirement when the market tanked years back (think around the same time as the housing bubble collapsed in the us).

I am hopeful that Vanguard Wellington™ Admiral™ fund (VWENX)would be a good place to start =)

Wellington is more like a good place to end up. Market contractions are inevitable but you have 35 years to rebound. I am around your age and 100% in VTSAX. The expense ratio is lower and the returns are higher.

Good job saving over $100k before 25.

 

[AP90]

Well, I think an important concept you need to internalize is that the ups and downs of the market do not matter until you actually start withdrawing your money. The next concept is that you are investing for the long term.

Once you understand that, do you think it really matters if the market tanks 20 years from now when you are 45? How is that going to impact your retirement when you are 65? The market will not tank and then stay tanked for 20 years. Markets go up because that is really what they do. Markets are a reflection of the value of businesses and so long as the economy is increasing and expanding so will the market. Well, I guess it theoretically could tank and remained tanked for 20 years, but if that happens there is nothing we can do and we are all fucked anyways.

I would read the OP I wrote and see what you think about it. It sounds like you won't have my opinions on bonds, but that is totally okay. You should do whatever you are comfortable with.

As for your plan to move to guaranteed income in 15 years, one major drawback of that strategy is that your interest rate will not beat inflation. That means that your guaranteed income fund will actually be losing money in relation to inflation.

To be able to do that, switch to a 1.5% interest rate fund in 15 years and sill have enough for retirement will be very hard. Do you have a pension? Because that will make it easier. If you don't, you will basically need to invest a lot of money and invest it all in stocks to have the hope of having enough for retirement with that strategy.

I would play around with this calculator to see how much money you will end up with. I would likely use 5-6% interest rate for the Wellington fund and 7-8% interest rate for the 100% stock fund (and 1.5% for the guaranteed income fund, obviously). This is obviously just an educated guess, but i think it is reasonable. More stocks means a likely greater return. Including bonds will decrease risk and decrease returns.

My philosophy is that since you are investing for the long term time is how we hedge against risk. When time stops doing that, say 15 years before retirement, then you start investing in bonds to reduce risk. You then use those bonds during a market slowdown during retirement and sell them. If bonds go down in a market tank, they will go down a lot less than stocks. I pretty much think that is the reason why we hold bonds.

http://www.daveramsey.com/blog/investing-calculator/#/entry_form

Thanks for the advice, info and link! I will have pension and will have 34yrs when I can retire at 55 (was paying into retirement w/ part time job growing up), which should give me close to 66% of my salary average from my last 3years of work (NYS will pick 3 highest value yrs).

I guess my thoughts about wanting to invest well for 15years then tread carefully for the is because i fear i will not have the time to monitor the market as well with the moving target that is life. (fiancé and i are planning to start a family and etc within 4yrs.

My thoughts are to use the deferred comp to supplement my pension and whatever social security gives me (half expecting it not to be there when its my time =/ ).

I know I have time.. Just want to get a good foundation setup to build off of.

 

[AP90]

Wellington is more like a good place to end up. Market contractions are inevitable but you have 35 years to rebound. I am around your age and 100% in VTSAX. The expense ratio is lower and the returns are higher.

Good job saving over $100k before 25.

Wish I had $100k to invest (I do not understand your comment above. ) Hopefully I will get there sooner than later. My deferred comp through work has certain options to choose from. VTSAX is not one of them. The VWENX is listed under the balanced funds options which I feel is safer after looking at its 10yr..and I am afraid to invest in mid cap and small cap funds as I am not knowledgeable as of yet.

 

[Darren870]

Be grateful. Most of us don't get that. The only saving grace I have is employee stock purchase once a quarter at at 15% discount of a limited amount.

Should be a law that employers have to offer retirement funds and contribute to it. Our generation is going to be in the pits since so little people actually save for retirement.

 

[Randolph Freelander]

Wish I had $100k to invest (I do not understand your comment above. ) Hopefully I will get there sooner than later. My deferred comp through work has certain options to choose from. VTSAX is not one of them. The VWENX is listed under the balanced funds options which I feel is safer after looking at its 10yr..and I am afraid to invest in mid cap and small cap funds as I am not knowledgeable as of yet.

He probably moved the decimal over a place, as admiral funds require 10K minimums if you're investing on your own (maybe some have higher, haven't checked).

As for your options, small caps and mid caps compose a fraction of what is VTSAX, or the total market admiral fund. It's going to be around 8 parts large caps (think S&P 500), 2 parts mid caps (think S&P Midcap 400), and 1 part small caps (think Russell 2000). If you have funds equivalent to these, preferably index funds, you can follow the Vanguard Total Market approach on your own (~73% large, 18% mid, 9% small). Don't stress it! Other people are doing that for you (and you'd be better off if even they weren't stressing it, as their stress translates into fees and expenses). Warren Buffet would tell you to put your money in an S&P index fund and not look at it for 20 years. This isn't terrible advice, particularly someone of your age.

Do what you're comfortable with. [Strong opinion]Just not stable value or VWENX.[/Strong Opinion]

 

[Makai]

Wish I had $100k to invest (I do not understand your comment above. ) Hopefully I will get there sooner than later. My deferred comp through work has certain options to choose from. VTSAX is not one of them. The VWENX is listed under the balanced funds options which I feel is safer after looking at its 10yr..and I am afraid to invest in mid cap and small cap funds as I am not knowledgeable as of yet.

Small, medium, and large cap refer to the size of the companies. The stock market is approximately 10% small cap, 20% medium cap, and 70% large cap. Total stock market indices match this proportion.

I thought you had $100k because you said you moved half of your portfolio into VWENX, which has a minimum investment requirement of $50k:

I just recently moved 50% of my portfolio from stable to Vanguard Wellington™ Admiral™ (VWENX)

 

[Piecake]

Small, medium, and large cap refer to the size of the companies. The stock market is approximately 10% small cap, 20% medium cap, and 70% large cap. Total stock market indices match this proportion.

I thought you had $100k because you said you moved half of your portfolio into VWENX, which has a minimum investment requirement of $50k:

These funds might be in a 403b or something, which means that they probably don't have any minimums.

 

[AP90]

As for your options, small caps and mid caps compose a fraction of what is VTSAX, or the total market admiral fund. It's going to be around 8 parts large caps (think S&P 500), 2 parts mid caps (think S&P Midcap 400), and 1 part small caps (think Russell 2000). If you have funds equivalent to these, preferably index funds, you can follow the Vanguard Total Market approach on your own (~73% large, 18% mid, 9% small). Don't stress it! Other people are doing that for you (and you'd be better off if even they weren't stressing it, as their stress translates into fees and expenses). Warren Buffet would tell you to put your money in an S&P index fund and not look at it for 20 years. This isn't terrible advice, particularly someone of your age.

Do what you're comfortable with. [Strong opinion]Just not stable value or VWENX.[/Strong Opinion]

Thanks! I will have to do more research on the options I have available. I will definitely look into trying to invest in a mix of large, mid and small cap.

 

[AP90]

Small, medium, and large cap refer to the size of the companies. The stock market is approximately 10% small cap, 20% medium cap, and 70% large cap. Total stock market indices match this proportion.

I thought you had $100k because you said you moved half of your portfolio into VWENX, which has a minimum investment requirement of $50k:

Maybe portfolio was the wrong word to use. The deferred comp is invested together with other state employees from across the state (so maybe they have more buy power? I am not aware of any minimus). I chose to take 50% of my deferred (which was previously 100% in stable) and selected to have them invest it in vwenx.

 

[TMC]

Hey all,

I apologize if this has been posted before. I am looking to get started with investing and this thread has been super helpful.

I am interested in opening a Vanguard Roth IRA account and invest in VGTSX and VTSMX. The problem is that both of these require a $3,000 minimum each, but the annual Roth IRA contribution is $5,500. What do I do for this? Is there any way possible for me to invest in both of these index funds with the Roth IRA account? I am new to investing so I apologize if this is a silly question.

 

[Randolph Freelander]

Hey all,

I apologize if this has been posted before. I am looking to get started with investing and this thread has been super helpful.

I am interested in opening a Vanguard Roth IRA account and invest in VGTSX and VTSMX. The problem is that both of these require a $3,000 minimum each, but the annual Roth IRA contribution is $5,500. What do I do for this? Is there any way possible for me to invest in both of these index funds with the Roth IRA account? I am new to investing so I apologize if this is a silly question.

See Piecake's recent advice here.

 

[TMC]

See Piecake's recent advice here.

Thanks so much!

 

[Wellington]

I may get burned at the stake for this here but I decided to open and fund a Betterment account for my taxable/non-retirement investing over a vanguard or fidelity account. My reasoning for it are as follows:

1) Most important it's essentially a front end easy button way to buy the Vanguard and Fidelity funds I wanted anyway.

2) As has been mentioned in the last page or so, a lot of the best funds that we all want to be in have minimum amounts for buying in. I will be stashing away approximately $700 a month so it would take me approximately 11 months to be able to open up a total stock market fund, a total international fund, and a S&P index fund. Betterment allows me to start small and add to all of those funds and more at the same time.

3) Tax Loss Harvesting is interesting. I am in a high bracket to begin with, any bit of savings will help.

Our buy MMM does it as he mentioned in his article here: http://www.mrmoneymustache.com/2014/11/04/why-i-put-my-last-100000-into-betterment/

My concern is the fees. I plan on stashing as much as possible in the account, so eventually I will cross the threshold in which I could have straight admiral shares. Here is their fees page: https://www.betterment.com/pricing/

Either way, I'll check it out. I signed up through a friend's link so it gave me 30 free days on top of the 30 free days they give you to start. This is my referral link if anyone is interested. 30 free days and I get another 30.

Edit - Cyan/Ghaleon: Not sure if referral links are even allowed. If not just remove it don't ban me!

 

[Makai]

2) As has been mentioned in the last page or so, a lot of the best funds that we all want to be in have minimum amounts for buying in. I will be stashing away approximately $700 a month so it would take me approximately 11 months to be able to open up a total stock market fund, a total international fund, and a S&P index fund. Betterment allows me to start small and add to all of those funds and more at the same time.

I think Betterment uses ETFs, which you have access to right now.

https://personal.vanguard.com/us/funds/snapshot?FundId=0970&FundIntExt=INT

^I think you can use this without a minimum contribution.

 

[Wellington]

I think Betterment uses ETFs, which you have access to right now.

https://personal.vanguard.com/us/funds/snapshot?FundId=0970&FundIntExt=INT

^I think you can use this without a minimum contribution.

Damn, looks like more research is in order.

 

[Darren870]

Yea, basically those companies just kinda charge you what you can do on your own. So you have to say "is my time worth what I am paying for?" For me I check my accounts every 3-6 months and re balance accordingly. Or whenever I contribute more money. All I need is a pie graph.

To me that's not worth $150 (or whatever the fee is)

 

[EmptySpace]

so 25, will start investing very soon. interested in long term, but short term wouldn't hurt as well. i don't make much (45k a year), but i plan to put away 10k for emergency fund, leave around 3k in chequing, and invest most of my income.

it seems like a very daunting task, to be honest. i hated finance courses at uni, but i'd rather know the basics and do the investing instead of going to the bank advisor so he/she can manage my funds for me. most of the time they'll try to talk people into investing in the bank's mutual funds anyway.

i just finished paying off my $33k student loan last week (basically paid off remaining $12k). i have about $14k left in savings, and $1,100 will go to mortgage payments every month from hereonout.

any advice where to start? i will be reading investing for dummies this week, will read more next week. i plan to read a lot in the next month or two before diving in, and that will help me save enough to start investing.


thanks.

 

[Makai]

so 25, will start investing very soon. interested in long term, but short term wouldn't hurt as well. i don't make much (45k a year), but i plan to put away 10k for emergency fund, leave around 3k in chequing, and invest most of my income.

it seems like a very daunting task, to be honest. i hated finance courses at uni, but i'd rather know the basics and do the investing instead of going to the bank advisor so he/she can manage my funds for me. most of the time they'll try to talk people into investing in the bank's mutual funds anyway.

i just finished paying off my $33k student loan last week (basically paid off remaining $12k). i have about $14k left in savings, and $1,100 will go to mortgage payments every month from hereonout.

any advice where to start? i will be reading investing for dummies this week, will read more next week. i plan to read a lot in the next month or two before diving in, and that will help me save enough to start investing.


thanks.

VTSMX is a popular choice here and what I started with. The minimum is $3k. Roth IRA is probably the way to go for most people.

 

[Easystride]

so 25, will start investing very soon. interested in long term, but short term wouldn't hurt as well. i don't make much (45k a year), but i plan to put away 10k for emergency fund, leave around 3k in chequing, and invest most of my income.

it seems like a very daunting task, to be honest. i hated finance courses at uni, but i'd rather know the basics and do the investing instead of going to the bank advisor so he/she can manage my funds for me. most of the time they'll try to talk people into investing in the bank's mutual funds anyway.

i just finished paying off my $33k student loan last week (basically paid off remaining $12k). i have about $14k left in savings, and $1,100 will go to mortgage payments every month from hereonout.

any advice where to start? i will be reading investing for dummies this week, will read more next week. i plan to read a lot in the next month or two before diving in, and that will help me save enough to start investing.


thanks.

I think all the information you will need will be in the OP! It is laid out very nicely. It does seem daunting at first, but trust me, it is not.

General rule of thumb is to max out your employer match (if any) for your 401(k), max out your IRA, and if you have extra, contribute more to your 401(k).

Congrats on starting! Too many young people I know in real life put off saving for retirement.

 

[EmptySpace]

VTSMX is a popular choice here and what I started with. The minimum is $3k. Roth IRA is probably the way to go for most people.

I think all the information you will need will be in the OP! It is laid out very nicely. It does seem daunting at first, but trust me, it is not.

General rule of thumb is to max out your employer match (if any) for your 401(k), max out your IRA, and if you have extra, contribute more to your 401(k).

Congrats on starting! Too many young people I know in real life put off saving for retirement.

i do not know if being canadian applies here, because i don't understand what roth ira is. is it the same as rrsp?

i am actually thinking of doing the investing myself rather than going through an rrsp (or roth ira). is that advisable?

what i actually want is to not wait until retirement to enjoy my savings. i would want to take some money out every now and then.

i know, there isn't a quick way of being rich. still, i don't want to wait until i'm 65 (that's 40 years) to be able to spend some money. not to mention i am a really, really cheap person and i don't spend money at all unless it is for necessity.

to be honest, i don't like the idea of saving for retirement. it's like everyone is saving money so they can have money and not be poor once they're retired. it is honestly quite sad to me that that is the case for most people (including me).