I' debating opening a Roth 403 B alongside my employer-assisted 403 B retirement savings, rather than just putting aside money into personal savings accounts. But the large pool of liquid dollars makes me feel secure. I think I'll wait and see how large my raise is this year first.
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How to Invest for Retirement
- Thread starter Piecake
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Randolph Freelander
Member
3 percent!
You know that scene in Back to the Future in 1955 when Doc finds out how much electricity is needed to power the time machine? That's the reaction here.
You know that scene in Back to the Future in 1955 when Doc finds out how much electricity is needed to power the time machine? That's the reaction here.
Wellington
BAAAALLLINNN'
Is it a bad idea to invest solely in one ETF? There's this one ETF I really like, XAW, because it covers just about everything except Canadian Equity and Bonds. It had US large, mid and small caps, international developed equity and emerging markets too. I figure I should just buy a bunch of XAW, set it on a DRIP and forget about it (only remembering to add more money in $1000 increments or something).
It's similar to the VXC that CCP recommends, except that it has a lower MER (this is the main selling point really) and also includes small caps, which the VXC doesn't.
I'm 20, so going 100% stocks isn't THAT crazy. And I'd have the benefit of fewer transaction fees and not having to worry about re balancing. I suppose a downside would be that I wouldn't have any Canadian Equity and so my entire portfolio would be exposed to currency risk. Maybe I'd buy some Canadian bond index too anyway.
It's similar to the VXC that CCP recommends, except that it has a lower MER (this is the main selling point really) and also includes small caps, which the VXC doesn't.
I'm 20, so going 100% stocks isn't THAT crazy. And I'd have the benefit of fewer transaction fees and not having to worry about re balancing. I suppose a downside would be that I wouldn't have any Canadian Equity and so my entire portfolio would be exposed to currency risk. Maybe I'd buy some Canadian bond index too anyway.
Does anyone here by any chance know how a borrow-to-invest loan affects your credit score? Since it's not exactly like a regular line of credit because you don't WANT to pay it back...
My best guess is that the longer it's open and the more timely payments you have the better its impact is, despite being technically a loan/debt? I'm not sure...
My best guess is that the longer it's open and the more timely payments you have the better its impact is, despite being technically a loan/debt? I'm not sure...
Horrible idea with the 3%. If she's investing $200,000 with a conservative 4% annual return and no further contribution, she will lose out close to $200,000 in 20 years just for the fees. Yes that's 2 with 5 zeros.
Not strictly about investing for retirement, but I found this podcast fascinating:
Planet Money: The Very First Short
It's a fun historical anecdote but also illustrates how the stock market developed and why things are the way they are.
Planet Money: The Very First Short
It's a fun historical anecdote but also illustrates how the stock market developed and why things are the way they are.
PflargBlarg
Member
It's probably not a big deal and you can add in some canadian bonds when you get older. I'd probably still recommend getting VCN along with it, but it's not a particularly pressing thing.
anonymous_abc
Member
Without having looked at your specific ETFs.
Just having one very diversified ETF sounds fine to me especially if you only have a limited budget to go towards it.
And it is very hands off.
For my SO who has no interest in such matters I just set up an MSCI World index which is bought automatically every month for x. And that is only large caps, so if yours is even more diverse that sounds good to me.
Contemplating my life insurance mmhmmmm
It's making roughly a 5% return at the moment... PLUS gives me life insurance. If I invested it in my TFSA instead and make 7%-ish that's 26.8k total interest on the life insurance and 45.7k on the investment...
20k difference over 20 years vs life insurance mhmmmMHMMMMMMM.
It's making roughly a 5% return at the moment... PLUS gives me life insurance. If I invested it in my TFSA instead and make 7%-ish that's 26.8k total interest on the life insurance and 45.7k on the investment...
20k difference over 20 years vs life insurance mhmmmMHMMMMMMM.
bennywhatever
Member
Might have been answered before, but I still wanted to ask.
What are you experts' thoughts on Vanguard 2045/2050/2055/etc plans? I don't know diddly about investments except that I need to do them. I started at my current workplace in 2010 (24 years old), and started doing the Vanguard 2050. I contribute up to employee match (6% with 3% match) with my 401k, and then another 1 - 3% with Roth IRA depending on how comfortably I'm living right now.
So anyways, are those Vanguard 2050 things any good?
What are you experts' thoughts on Vanguard 2045/2050/2055/etc plans? I don't know diddly about investments except that I need to do them. I started at my current workplace in 2010 (24 years old), and started doing the Vanguard 2050. I contribute up to employee match (6% with 3% match) with my 401k, and then another 1 - 3% with Roth IRA depending on how comfortably I'm living right now.
So anyways, are those Vanguard 2050 things any good?
There are essentially 2 things to consider when looking at these plans. 1) what is the cost (expense ratio) and 2) what is the composition over time?
The expense ratio, as I'd expect from Vanguard, is very low at 0.18%. Their target date funds are just bundles of their index funds, as that page shows. Over time they will shift the allocation in the target date fund to have more of the bond indexes and less of the stock indexes, as retirement approaches. This is the standard approach to diversification as retirement nears and is one you should follow, whether you go with their target date funds or with individual funds.
What I suggest you do is look at the way they plan to change the allocations over time and see if you are comfortable with their level of risk. Which is to say, what the mix of stocks and bonds are 10, 20, 30 years from now. (That should be in the fund plan or prospectus, on the site I linked). I find target date funds tend to be a bit conservative in general (without having looked at this one in particular), but if you are comfortable with that, target date funds are a good "set it and forget it" way to save for retirement. They'll do the rebalancing for you, both over the year and as time passes. And by going with Vanguard, you are going with the best / lowest cost company in the industry.
bennywhatever
Member
Thanks for the great response!
Sounds like I'm in a good spot, then. When I first signed up about 5 years ago, my company advised me to go with this one. I'm happy they did.
I'm usually pretty proactive about money things in my life, but retirement and investments have just never "clicked" for me. I really like the idea of "set it and forget it."
Do corporate bonds have the same negative correlation with stocks and stability that people buy government bonds for?
I'm looking at VSC, which is a Vanguard Short-Term Corporate Bond ETF in Canada. I figure if it has all the same benefits people would usually have VAB/VSB for, but better yields for not all too much more risk.
Also, can anyone speak to the pros and cons of holding REIT ETF's?
I'm looking at VSC, which is a Vanguard Short-Term Corporate Bond ETF in Canada. I figure if it has all the same benefits people would usually have VAB/VSB for, but better yields for not all too much more risk.
Also, can anyone speak to the pros and cons of holding REIT ETF's?
Darren870
Member
This will probably fall on deaf ears since I am in a unique situation. However, I figured its worth asking since you never know.
I am an American who has a Roth IRA and IRA through Vanguard. (About 40k between the two)
I worked in the UK for 5 years and have 2 retirement accounts there. (About 60k between the two)
I now have been in Australia for a year and have 2 retirement accounts here. (About 10k between the two)
So...I don't even know really where to begin with this. I plan on staying in Australia for at least another 3-5 years. I own a house here with my missus (Aussie) so don't see us leaving anytime soon. I just am not sure what do to do with all these accounts.
My first step is to combine the retirement accounts here. That paperwork is now been sent in. This shouldn't have happened but my company screwed up at the start and opened a new retirement account rather then contributing to my existing one.
Once that is done I want to look into the UK accounts. I don't think I can combine them without paying a penalty. I will have to look into that though, that would at least make things a bit easier for me. I looked into moving them to the US, but I can't. Its not allowed. I also looked into moving them to Australia, but I will have to pay 15% tax on the gains, since I didn't move them in the first 6 months of moving here.
So I guess I just leave them till I can start withdrawing? I can't say I'll never go back and work in the UK, I did love living in London, but who knows what will be going on in 5 years or so...I really don't know. We've talked about moving to the US for a bit, and we've talked about living in other places.
Its also annoying for me as I have to declare all these to the IRS. So that's why I want to consolidate and keep my accounts at a minimum. The less paperwork the better I say!!
I am an American who has a Roth IRA and IRA through Vanguard. (About 40k between the two)
I worked in the UK for 5 years and have 2 retirement accounts there. (About 60k between the two)
I now have been in Australia for a year and have 2 retirement accounts here. (About 10k between the two)
So...I don't even know really where to begin with this. I plan on staying in Australia for at least another 3-5 years. I own a house here with my missus (Aussie) so don't see us leaving anytime soon. I just am not sure what do to do with all these accounts.
My first step is to combine the retirement accounts here. That paperwork is now been sent in. This shouldn't have happened but my company screwed up at the start and opened a new retirement account rather then contributing to my existing one.
Once that is done I want to look into the UK accounts. I don't think I can combine them without paying a penalty. I will have to look into that though, that would at least make things a bit easier for me. I looked into moving them to the US, but I can't. Its not allowed. I also looked into moving them to Australia, but I will have to pay 15% tax on the gains, since I didn't move them in the first 6 months of moving here.
So I guess I just leave them till I can start withdrawing? I can't say I'll never go back and work in the UK, I did love living in London, but who knows what will be going on in 5 years or so...I really don't know. We've talked about moving to the US for a bit, and we've talked about living in other places.
Its also annoying for me as I have to declare all these to the IRS. So that's why I want to consolidate and keep my accounts at a minimum. The less paperwork the better I say!!
Where;s thee question in all this?
I know definitely not enough about your situation, but the first thing you should do is read up on what exact tax treaties the three countries have, both with respect to keeping money in accounts in foreign countries, and in terms of transferring them. I know the situation between Canada and the US is already somewhat complicated, I can't imagine what it is between three different ones.
Darren870
Member
Where;s thee question in all this?
I know definitely not enough about your situation, but the first thing you should do is read up on what exact tax treaties the three countries have, both with respect to keeping money in accounts in foreign countries, and in terms of transferring them. I know the situation between Canada and the US is already somewhat complicated, I can't imagine what it is between three different ones.
Haha, suppose its a vent. Though I guess the question is .. what do I do!?!
I also need to look into the tax treaties when I start with drawing. All these three countries have tax treaties, so I shouldn't have to pay double tax on the income...but who knows what is going to happen in 35 years when I can actually start withdrawing from them!
Become wealthy and own a home in all three countries and simply withdraw from the accounts that correspond to where you are living? We have faith in you Darren!
But yea, I honestly have no idea how to help you with that.
Darren870
Member
Actually, this sounds like an amazing plan! I'll go with this =D
My quest for world domination is slowly progressing. The missus always wanted a house in Regents Park too!
Oh well, thanks guys. I'll probably just consolidate it and leave it as is for now. I've spoken to accountants a few years back and they quoted me some crazy price to move it. It wasn't worth it to me (they even told me it wouldn't be worth it). However, now that I am in Aus I can actually move the UK one. Something I couldn't do before hand.
Suppose it was more of a vent/hail mary since I read this thread a lot and am actively trying to sort these things. I just did my US taxes too and was hoping I could put more money in my IRA. I can't =(
I would consult a tax advisor on whether the accounts may be considered investments in PFICs, which would require you to pay US tax every year on your yearly unrealized gains because the IRS likes to punish people who invest in non-US mutual/pooled funds.
Darren870
Member
There not thankfully, I've checked. Since they are in retirement accounts they are protected.
Though I wonder if I start investing in a Vanguard ETF here (Australia) if I will have to pay tax on it in the US also.
I just started using a specialized accountant whom work only with overseas Expats. She has been a bit of help for doing this year tax returns. Suppose I'll ask her.
Does Vanguard have an Australian subsidiary? If they do, invest with them in a registered account and you shouldn't have to pay taxes withhold by the US. If it's a US-based stock you might be out of luck
Darren870
Member
Yea they do, not for retirement accounts but for index funds and ETFS. They are Australian based stocks, not US based. I wouldn't invest in a US based stock here as I will likely get hit with tax twice. You really need to keep them separate and never invest in an overseas stock :/.
I also have no desire to send money home as the exchange rate doesn't work in my favor at all.
The opposite would be a better tax answer since US taxes on worldwide income and penalizes Americans for investing in non-US registered/incorporated pooled funds (of which an ETF would be one). But if the Australian Vanguard ETF is US-registered/incorporated (I don't know what the mechanics behind that are), then it is better.
http://thunfinancial.com/why-americ...-shares-in-a-non-us-incorporated-mutual-fund/
Darren870
Member
F' it, I'm going stateless!!!
Err, yea so in the end it would almost be better for me to invest in an actual stock for a company rather then munifunds/index funds over here.
I also have no desire to send money back home, the exchange rate from AUS->USD is horrible and will only kill and potential gains.
I'll check with Vanguard though. And my accountant.
Seems you know a fair bit about this! I didn't even think about it, and I was over in AUSGAF last month talking about ETF's/Index funds and thought I'd put some money into them.
Edit: I also find it ridiculous that I have to pay money on overseas investments when I haven't lived in the US for 6 years now. Part of me doesn't even want to declare it, just declare my normal salary.
I am not an expert on the topic, I know just enough to be wary and annoyed with these silly rules.
Here is some Bogleheads discussion that suggests that some Vanguard ETFs are okay for the PFIC rules but some are not (depending on where they're registered?):
https://www.bogleheads.org/forum/viewtopic.php?t=60997
My understanding is that a lot of people in the past just don't declare it. But the worry with the stronger FATCA laws are that the financial institutions are required to submit your account information to the IRS (that's why some banks won't accept US citizens now, since it costs them money to annually send your information to another country's tax authorities), and then the IRS may question why you have these foreign accounts that 1) you did not report, since you're required to declare your foreign accounts and 2) if the money seems to not match your declared income, they may question where the income come from.
But who knows how serious they are going to be against small fry individuals, especially since a lot of Americans abroad are not aware of all these complicated rules.
I guess under the FATCA regime, the IRS still won't know about bank accounts that are opened without showing the bank a US passport.
Darren870
Member
Ahh yes, I forgot. Don't you live in China? Even worse for you then me!
I guess the other option I have is just do everything through my partner. Where I eat the bills and she invests the money. She has no greencard or anything like that. Though, I was hoping one day we would move there for a few years.
I double checked again on my UK Pension for PFIC and it is okay. However, the Australia Super seems to be a big up in the air. Since its not actually defined in the tax treaty between the two countries. It goes back and forth of if it is subject or not. If it is and I retire here I would actually have to give up my US citizenship. If I was able to take out $60K + p/y all of it would be gone to the tax man (US & AUS).
I seriously don't even understand this. I know they will likely never come after me, and I file every year in the event I do come back home, but this is all doing my head in once again....
Also, I love this:
I've never even f'n heard of Eritrea...
wait, US citizens get taxed even on FOREIGN stock in a FOREIGN REGISTERED account? you serious? wow
Darren870
Member
We get taxed on everything. If I were to buy a house here and rent it out, I'd have to pay US tax and Australia tax. Even if the money never hit the US.
But you get hit even worse if it a mutual fund. So it seems.
You can claim double taxation, but there are limits and I've been over them before
EmptySpace
Banned
okay i can now invest through webbroker, although i have not set the account up online since i'm at work.
question, i know td charges a $10 for transactions on etfs. what are the other fees involved in investing in etfs? i plan to buy some vanguard etfs through td direct investing tfsa.
question, i know td charges a $10 for transactions on etfs. what are the other fees involved in investing in etfs? i plan to buy some vanguard etfs through td direct investing tfsa.
look up what the fees are for selling it
look what the MER is (<1% is good, but vanguard is a fraction of that for all their ETF's so you should be fine, and that's more of an internal cost anyway)
so... that's about it. Taxes on dividends and capital gains/losses depending on the account. (not sure about the US rates here)
EmptySpace
Banned
aside from mer, and the flat rate for transactions, are there any annual fees? why is it that i see both management fees and mer whenever i look at vanguard etfs on the site? do both add up and that's the final fee for the year? are there any other taxes or levies besides those 3?
well, i am using a tfsa account so gains won't be taxed, i think. and it's not like i'm going to sell them shortly.
There might be account fees if you have below a certain amount of money, but that's a really low amount and something you probably don't have to worry about.
The MER is management fee + other expenses (tradings expenses and such). In a TFSA you won't have to worry about capital gains tax or anything like that. There might be withholding taxes that some governments charge on dividends paid to foreigners. The US takes 15% (30%, I think, if you don't fill an IRS form saying you're a owner in good faith, but the ETF will take care of that), unless you are holding US listed securities in an RRSP (and only an RRSP, there is no such exemption for the TFSA or taxable accounts).
correct, that's it. Like Mike said though, US securities will have their dividends partially withheld and you have to apply for a foreign tax credit come tax time, so it's a pain and you should just keep it in an RRSP instead. Canadian-based US stock ETF's (e.g. VUN) don't have that issue, only US-based funds in USD, if you choose to own them. Then you might suffer from a currency conversion fee that can be quite hefty, just to be aware.
But no, there's no annual fee that you have to pay or anything, unless your TD investment account has that. the ETF itself doesn't have an annual fee per se, and the MER is taken care of by the ETF itself (e.g. you'll get 0.15% less "profit" on the ETF, marginal impact)
in a TFSA you don't pay for dividends or cap gains, but keep in mind that you also can't claim capital losses - so if you want to invest in risky stock/ETF's it might be "safer" to keep them outside a TFSA if you wanna have the insurance of having capital losses claimable.
EmptySpace
Banned
thanks. is it advisable to buy index funds outside of trading hours? or any other securities, for that matter?
anonymous_abc
Member
Honestly if you are init for the long run and don't want to start day trading it makes absolutely no difference.
UpperCaseN
Member
I want to invest in the index funds mentioned in the OP. Where do I start? Like, who do I give the money to? Is there a website where I can sign up or do I have to contact a Stock Broker from the phone book or something? Also what amount of money is good to start with? I can do like $2k right now or I can build it up before starting.
Amory
Member
there's a ton of websites you can use (e-trade, scottrade, fidelity, etc).
if you're looking for a long term investment there's no reason you shouldn't just start now with what you have. you can invest more as the money comes in.
Anoregon
The flight plan I just filed with the agency list me, my men, Dr. Pavel here. But only one of you!
I actually started a Vanguard account last night and put money into a couple of their funds (including total stock index), it's very easy to do on their website and does not require any sort of stock broker or middleman. They have a minimum initial investment of $3,000 per fund though, so 2K would not work.
What country are you in?
Canada I'd recommend Questrade. Free to buy ETF's and free to hold an account as long as you either make at least 1 trade every 4 months or have more than 5k in it. Stock trades cost anywhere between 5 and 10 per trade depending on how much you buy/sell. It also has your standard TFSA and RRSP. For the US someone else can probably recommend something.
If you are in the US, start here: https://personal.vanguard.com/us/openaccount?CompLocation=GlobalHeader&Component=OpenAccount
You probably want to open a Roth IRA account, assuming you are young-ish, rather than a traditional IRA. You contribute cash to the IRA, and then use that cash to buy things. Check the last few pages for discussion on which ones to pick from them; I suggest the global stock index.
So is this math about the same as seen here http://www.estimatepension.com/Retirement-Withdrawal-Calculator.aspx and putting retire age = 65, life expectancy = 95, final savings = 1,000,000, rate = 4% (7% return - 3% inflation).
That shows a yearly withdrawal of $55,605. And a 3% rate shows $49,533.
But actually that doesn't include the SS money, so not too sure now. . .
UpperCaseN
Member
Thanks for the responses, everyone. I have to admit, I don't know anything about this. I did however think to check my 401k through my employer. You can either manually select investments or they have some presets you can use. The one I'm on is "Retirement 2045" which is close to when I'll be retiring age. It's basically a preset that is auto managed, lo and behold, some of the included investments in that are the Index Funds.
What's the management expense ratio on it?
UpperCaseN
Member
I had to check, it says:
Fund Total Expense Ratio (net): 0.76% Fund Total Expense Ratio (gross): 0.76%
Is this good or bad?
Randolph Freelander
Member
Bad.
I'd say mediocre. Worse than Vanguard, but it's not a dealbreaker. Just imagine trough the years year you're losing investment*(1.005^x-1) value compared to Vanguard.
Randolph Freelander
Member
I'd say it's pretty well terrible. From memory, I think a similar Vanguard fund has an expense ratio of 0.18%. That difference compounded over 30 years creates a sizable gulf. For example, $10,000 invested for 30 years at market returns of 10%, minus the 0.18% expense, will grow to $166,128. Bump the ratio to 0.76%, the value only grows to $141,726. 40 years? $424K versus $343K. "Small" percentages become large over time.
With just a little bit of time invested, and assuming you have a good blend of available, low-cost index funds, you can put together a portfolio to mimic a target date fund but without the high expense overhead. Then you just revisit your allocations every year or so and see how the benchmark is shifting, and decide if you want to replicate that gradual shift.
UpperCaseN
Member
rad. I can do this. I made 1 tweak already and I want to wait a few days for it to reflect. I'll look up the expense ratios for the other options and compare. The company's 401k's just moved from T. Rowe Price to "Voya." They make it pretty easy to compare and now I know 0.76% is high.