How to Invest for Retirement
- Thread starter Piecake
- Start date
SEP is employer only funded, tax deferred.
A Roth is limited to 5.5k a year right?
I need to do more research. I just need to do more than let $$$ sit in a savings account now that I have Sallie paid off.
I can sympathize. I started investing in 2000, and our adviser put us in tech growth funds and stocks. Yeah.
:lol at the bold, I'm going to shamelessly steal that.
Others answered this, but I'll take a shot as well. To break it up:
No, they're just regular mutual funds. Most firms have a certain amount you need to start with after which future investments are up to you.
See Piecake's reply on this one.
Actively managed mutual funds beat the market less than half the time over the short to medium term, and far, far less than that over the long term. Over say, 20 years the odds of beating the market in a non-index fund is near zero. So, if you happen to pick a winner (and history shows you can't just pick ones that did great in the past and come out on top), you do better than the market. But odds are pretty good you won't. Index funds mean you get the market return, always. (Minus a very small cost of managing the fund, usually around 0.2% on good funds.)
I strongly suggest watching the videos, in order, here: http://www.bogleheads.org/wiki/Video:Bogleheads®_investment_philosophy
They're short, aimed at the new investor, and explain a good range of topics, from diversification to index funds. As an experienced investor I still found them incredibly insightful.
Right. Generally, you want to take more risk with your long term investments in exchange for higher returns, and less risk with your short term ones. Cash is liquid but basically earns nothing, bonds are more stable than stocks but generally feature lower returns, and stocks have the highest return (over time) but are the most volatile. I think of it as a slider: the longer out you go, the more stocks and the less cash/bonds to hold in any one wine glass.
I put the money in our wine glasses thus:
Cash: um, it's cash. For emergencies and short term purchases. It's there when we need it.
Savings funds: we use these for things we may want to buy in 3-5 years like cars, or for serious disasters. They're in a fund that's 85% stock index funds, 15% bond index. Still good returns but not as swingy as a straight up stock fund.
College: all stock right now (50/50 US/International stock index), but I plan to transition to bonds as we get closer to needing it. My own strategy is to shift 10% of the funds into a bond fund each year the kids go through high school, so they end up with 50/50 stock/bonds when they get to college. I may even shift more to bonds than that as even that approach is on the aggressive/risky side.
Retirement: 100% stock indexes (50/50 US/international). Bonds will do nothing but reduce earnings over the next 20-30 years. I may shift some to bonds when I'm say, 5 years from retiring. Many others prefer to hold some small % in bonds at all times.
See above. We use cash for medium term stuff. (I'm building a shed this summer, so we put the money in savings. A car in 5 years? Stock/bond index.)
Glad you're getting curious and digging into what you can do. Hope this and the replies of others help!
Also, while I'm describing what my own approach is, you may land at different mixes of things. That's okay. The important things are to keep costs low (index funds are the best way to do this), diversify well (again index funds are good here) and keep it simple (don't hold more than say, 3 funds in any one wine glass; there's not really much point in doing so).
I'm gonna get super Canada specific here. Can anyone clarify how a TSFA works? I understand that unused contribution limit gets carried forward, but is this based on age or on when the TSFA was opened?
Currently I'm 18 and while I did work over the summer I don't make enough to pay taxes anyway. Most of the money I do have is currently sitting in a normal savings account in a credit union receiving 1.35% interest, which seems to be higher than what the banks offer in their TFSA's. My concern is that by not having an open TSFA I am not accumulating additional contribution room that I can use later in life when I graduate and am making enough money to pay tax. Should I open up a TSFA and just leave it empty so I can accumulate contribution room? Also, I understand that the TFSA doesn't reduce income tax, just capital gains tax, correct?
Currently I'm 18 and while I did work over the summer I don't make enough to pay taxes anyway. Most of the money I do have is currently sitting in a normal savings account in a credit union receiving 1.35% interest, which seems to be higher than what the banks offer in their TFSA's. My concern is that by not having an open TSFA I am not accumulating additional contribution room that I can use later in life when I graduate and am making enough money to pay tax. Should I open up a TSFA and just leave it empty so I can accumulate contribution room? Also, I understand that the TFSA doesn't reduce income tax, just capital gains tax, correct?
Huh, thats kinda cool.
I guess if it doesnt cost you any money to leave it open, then why not?
http://www.finiki.org/wiki/Tax-Free_Savings_Account
It looks like the TSFA is like our Roth, so its taxed now, but capital gains and dividends will be tax free and distributions will be tax free as well.
Obviously a certain percentage of fund managers will beat the average across any given time period, that's why it's an average. The point is your odds of picking the one that does and not the one that doesn't are not great, and when you subtract fees from that, it becomes even trickier.
It's not even that fund managers are stupidly picking bad stocks and the few managers that don't pick bad stocks win, it's that the very act of managing a fund imposes costs on you. Actively managed funds have to have cash on hand to buy stock that an index fund doesn't need. That can be 5-10% of your invested cash sitting on a shelf gaining you nothing. There are transaction costs of course, and then you actually have to pay the people to do the research and pick the winning stocks. Even if you win you don't win.
Here is some advice from the one person on the planet I trust to beat the market(though he does it by buying and building good profitable businesses, not by trading):
http://www.usatoday.com/story/money.../26/warren-buffett-investment-advice/3188499/
RustyNails
Member
UGH. My Personalized Rate of Return has been complete shit since Jan 1st for my 401k. Stock markets are crapping out.
Thanks Obama.
Thanks Obama.
RustyNails
Member
What does Warren Buffet mean when he says buy an index fund over time? Does he mean keep buying more shares of that fund over time, or keep buying new index funds?
KernelPanic
Member
You get the contribution room increase every year regardless whether you open one or not. You should have about $31K right now if you were to open it.
Register and sign unto your CRA account and you will see how much TFSA and RRSP contribution you have.
Contributions to TFSA are taxable, the interest you earn is not and neither is any withdrawal although you can't put the money back until next year or you get hit if you go over. Whatever you withdraw comes out of your contribution room for the year. You get it back the following year.
Same fund over time, to even out the volatility.
http://en.wikipedia.org/wiki/Dollar_cost_averaging
If you buy the same stock over a long enough time period, your average price should be close to a reasonable price. Sometimes you will overpay, sometimes you will get a deal, but this averages out the bumps in the market, where as if you dump all your money in at a high point, you get less gain.
I find this more relevant for people with a reasonable sum to invest with to start though, unless of course you get free ETF transactions.
Otherwise the effect will be too small to make much of a difference, and if you invest your spare savings a few times a year only, you are effectively dollar cost averaging anyway.Randolph Freelander
Member
For me, I can't justify Roth before a pre-tax 401K. My personal top marginal rate is 28%, which is what I would basically be paying to contribute to a Roth now. I'm essentially banking on my average tax rate when I retire to be less than that, because disbursements will go through the full range of marginal rates, which I do not expect to be markedly higher than they are now.
Now, I will begin contributing to a Roth in addition to my 401K, but only dollars beyond the 401K maximum (which I'm presently hitting, but I'm diverting excess funds into savings for a home purchase this year). Perhaps late this year, or certainly in 2015, I'll begin the Roth for additional retirement savings, as that seems to me to be the best next option. After maxing that, then it would be ETFs and investments of that nature.
He means to hold them over the long term. A few other Buffet quotes on index funds:
http://www.getrichslowly.org/blog/2013/04/23/invest-like-warren-buffett-but-not-really/
http://www.cnbc.com/id/100518304
Buffet advocates index funds for most investors, not just amateurs. See first quote above.
Learn2read
Member
Contribution room is carried forward. The $5500 room for 2014 (and I guess 2013 if you turned 18 then?) can be filled up in later years.
Well, to be fair, I think most investors (vast vast majority) are amateur investors. A good portion of them just might not know it
Good to know I don't have to worry about opening a TFSA yet. Thanks! I'll make a CRA account once they're done whatever maintenance they seem to be doing, especially since I should probably file taxes anyway.
That is fair. I felt that the oh, that's for amateurs response was overly dismissive. It's fine so long as we note that it applies to most investors.
I think pursuing actively managed funds over very long horizons is a fools errand, but particularly for new investors - which is what we're talking about - it's important to emphasize the increased risk that higher cost funds bring.
This is highly selective quoting and distorts the message behind what he is saying. He specifically identifies index investing as the best method for most investors. And I would add, over long time horizons, the data is clear. So long as we are discussing retirement - and we are - index investing makes a lot of sense.
arglebargle
Member
most of the available research indicates that there is no persistence to mutual fund outperformance. for example:
http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1997.tb03808.x/abstract
i know there are examples like fidelity magellan, but that could very well be an artifact of how many actively managed funds are out there.
i work in an industry that basically requires me to believe that there are some investors that can beat indices, but as a retail investor it is extremely difficult. the odds are very much against you and therefore almost everyone should index.
arglebargle
Member
Thanks, Argle. I will read tomorrow. I would like to see if they are segregating funds by their benchmark or simply grouping everything together regardless of benchmark.
What's your profession?
i am not familiar with this paper specifically, it was more an example of the research that is out there. i am a bit skeptical of formal research on the topic in general because benchmarking is very hard, data sets won't include all investment options, and risks can be difficult to quantify (when they are even controlled for). my point was a more general one that for most people, especially those who have jobs that dont include selecting fund managers, indexing is the correct option. this is what most people in the thread seem to agree on, any differences seem to be of degree rather than kind.
i work in the field of foundation and endowment investing.
Damn...I'm jealous. That carry-over is a great advantage.
I'm very interested to see where the TFSA system will be in 20-30 years. Since you can hold anything in them, including options, there's going to be absolutely huge accounts that are entirely tax sheltered. Of course, you can't claim capital loses if you start playing with options and lose a bunch of money.
Boggles the mind, but there are some huge Roth IRA accounts in America even though you are limited to a 5,5k contribution a year and thats it. Rich people are supposed to be excluded from it, but the back-door Roth gets around that.
Best example is Mitt Romney and his 20-100 million dollar Roth IRA. Something really funny had to be going on for his Roth to be worth that much...
arglebargle
Member
Lucrative but stressful work. Hope you're enjoying and doing well with it.
I agree with your point on research 200% and you are spot on with your observation.
I believe and engage in index strategies to a degree (core portfolio). I do not believe beating the benchmark is the end game for exact reasons you mentioned nor is it an appropriate measure of success as others here continue to highlight. Thus I strongly disagree with the assertion that it is the be all to get people to where they want to be. Too much emphasis on the what but not the how.
I believe in creating an efficiently put together portfolio with negatively correlating assets that make up our markets as a whole and that cannot be found in an index strategy so people do not lose unnecessary money. I believe that if you have to pay a % of a fee to avoid losing 50% then it makes mathematical sense, ha ha. In fact this is key here for many families who lost millions in '07. I also had issues with advocates of a sole index strategy not highlighting the risk of said strategy. Advocating the strategy is fine but you have to quantify the parameters and discuss it (pros, impementations, unsystematic and systematic risks, etc) and put a plan in context. The biggest problem with not putting a floor into the picture is that it is highly dismissive of people's emotions and personal parameters which is why I tried to dispute the buffet quote, a quote I find to be highly ironic.
My problem often in this and the other thread is I have not articulated my points better than I could have resulting in me sounding snide. That and emoticons, have to use the emoticons.
ah, ok. i see where you are coming from now. i think i misunderstood your position. i of course agree about constructing a portfolio on the efficient frontier and so on. the only points i would make are:
1. the vast majority of the us has trouble saving any money at all and frankly dont understand what they should be doing even if they do save some. discussions of academic finance tend to make eyes glaze over. this is why target date and lifestyle funds offered by providers such as vanguard are so popular. they construct a portfolio of many different assets (domestic stocks, foreign stocks, domestic bonds, foreign bonds, TIPS). in a perfect world, these would include some natural resources or real estate investments or other asset classes, sure. but they offer a very simple way to get diversification, are basically index funds, and are extremely cheap.
2. similarly, you can index on many uncorrelated assets. the total stock market funds may be a simplistic investment strategy, but even just through vanguard you can add a whole variety of bonds and REIT exposure. other fund families have products indexed to commodity indices. so indexing is still a viable strategy if the goal is an efficient portfolio.
James Sawyer Ford
Banned
What you described doesn't exist over long periods of time.
There is no free lunch "less risk, greater return" actively managed fund out there.
And net-returns over long periods of time are directly correlated with costs.
Heisenberg
Member
So would I be smarter to move my money into only 1 or 2 funds in my IRA's and 401k? I currently have the money split up quite a few different funds on Vanguard but maybe that is a bad idea.
It really depends on what those funds are and whether or not you are employing a low-cost strategy that makes sense, and that you can stick with it. Personally, I am a fan of just following the whole market with two funds, but there are various index strategies out there that purposely invest more in certain sectors or do factor/value tilt strategies, etc.
Feel free to post your funds with the expense ratio and the % of total owned and I am sure I or someone else can help you out.
OK so I have a pension through the city that I work for. I hear pensions aren't really offered much anymore, so is it good that I have one? Is it any better than a company that matches 401k? I literally know nothing about my pension except that when I retire in 25 years I'll get 60k a year till I die {60k doesn't include the yearly cost of living increase I get each year}. I planned on just going with the pension plus maxing out my Roth IRA each year. I'm 25 and hsve maxed out twice so far.
My job also offers a 457 deffered compensation plan but it I'd through a company called VantageTrust. It looks like their expense ratios are around 1% though. Would it be smart to still put some money in that instead of the rest in Vanguard Total Stock Market Index like I am doing now?
My job also offers a 457 deffered compensation plan but it I'd through a company called VantageTrust. It looks like their expense ratios are around 1% though. Would it be smart to still put some money in that instead of the rest in Vanguard Total Stock Market Index like I am doing now?
You are in a thread with a mix of experienced and inexperienced investors. Many of said experienced investors are advocating the use of index funds (say, myself and Piecake). You dismissed those as good for amateurs. It came across to me as condescending and flippant, though I understand that was not your intent.
I've been investing for over 14 years now, starting with a Roth IRA my first year of college. Each year I've learned more, each year I think I've gotten a bit smarter and more educated about investing.I am not trying to be facetious, just genuinely confused. Regardless, let me rephrase: it is a strategy for amateur (of limited skill or knowledge) investors, which is in line to what you are saying. I did not intend to be dismissive nor intend to use the word "amateur" condescendingly. I am not sure if they compose a majority or not is relevant. Maybe it is. I wouldnt look at someone and say "well, because you're in a majority group, i recommend indexing". Would make for a good laugh
While I still have lots to learn, I've come to the exact opposite conclusion. Index funds are for investors who have done their research and understand how costs erode your earnings. It's for investors who learn to avoid loads, or sales fees, or commissions and have learned the many ways the industry is stacked against the average investor. They're for individuals who have learned that you have a less than 50% chance of beating an index with an actively manged fund over any decent period of time. And almost no chance over the long haul. Investing professionals - the ones managing non-index funds - fail to beat their respective indexes most of the time.
It took me years to figure out how bad the investment industry actually is at investing, and how good they are at extracting my returns via expenses. The peak of my years of learning is, when you are saving for retirement, or a long term investor, it's downright foolish not to incorporate index funds into your investments. I'm not saying they're the only solution - even Vanguard offers actively manged funds. But I think it's very condescending and flat out inaccurate to say index funds are for inexperienced investors. The data simply demonstrates they are the smart investment over the long haul. Amateur investors won't know that.
Edit: To clarify something. I'm addressing the specific goal of long-term retirement investing, while accepting the risk of the equities markets as a whole. Research has convinced me that you can't beat the market over those long horizons, and I'm willing to accept the volatility of the market over long time horizons. But if you have a different goal - reduced volatility, say - then you need a set of tools and strategy that may differ. I don't think index funds are the only way to go, just the one that fits my goal. Where others share that goal and acceptance of market risk is where I recommend the use of index funds.
I think your plan is good so far. A pension and a fully funded Roth IRA that includes index funds will leave you will a comfortable retirement. The only thing I you might have an issue with is your pension benefits getting cut, though thats pretty impossible to predict. And pension > anything that we have talked about in this thread.
the 457 doesnt make much sense unless they match. If they do, fund it to that point and then invest the rest in your Roth. If they don't, dont bother. Your pension and Roth IRA should be plenty
GoldenEye 007
Member
I just started my career and opted for a pension instead of a 401k. I figure as long as it stays funded by the state, it would be nice. Takes 8 years to vest.
Also started a TIAA-CREF Roth IRA account. I have a good mix of funds I think. But I haven't been contributing as I should be to it.
Also started a TIAA-CREF Roth IRA account. I have a good mix of funds I think. But I haven't been contributing as I should be to it.
I would first spend some time reading through this thread and look at some of the links and videos in here as well. It is very important to understand why you are investing the way you are. If you don't and are just investing because you know its important to invest there will be a greater chance of you making a huge mistake (that be panicking and selling low) or have to completely change up your investment strategy if you think what I am saying is total bunk.
Once you've done that, go here and open an account. If this investment is for retirement, I would then go here and open a Roth IRA. Once that is open and have money in your money market fund (you need this to buy funds and as a place where the sale of funds goes) you can transfer those funds to purchase an index fund.
You need to determine what asset allocation you are comfortable with. If you have 12k, I would probably put 8k in total us stock market and 4k in total international stock market. The next 2k should go to the total US stock market fund to drop the expense ratio of that fund. Now, that is what I would do. That is not necessarily what you should do because the most important thing is to be comfortable with your investments, because like I said, the worst thing you can do is panic and sell low.
If your company offers a 401k and it matches a certain percentage then are throwing away free money by not participating. Sign up because its really stupid not to.
I just started my career and opted for a pension instead of a 401k. I figure as long as it stays funded by the state, it would be nice. Takes 8 years to vest.
Also started a TIAA-CREF Roth IRA account. I have a good mix of funds I think. But I haven't been contributing as I should be to it.
Yea, I would definitely make that choice as well. Pensions are easily the best retirement vehicle. When I hear a good mix of funds I get a bit concerned though. I could be wrong, but that sounds like you put more focus on the asset class of the funds and not the fees of those funds. If true, I would totally check that out and see how much you are paying in fees.
arglebargle
Member
is the 12k all of your savings and in cash (checking or savings account)? before investing i would evaluate what your monthly expenses are and keep 6 months or so in cash. after that i would more or less follow pie's advice.
Yea, this is true. I assumed that the 12k was the amount you had to invest. I personally like 3 months more since I think 6 is just too much money doing nothing, but I am in the minority on that.
Advocatus Diaboli
Member
I don't consider myself an experienced investor, considering to this point, I've mostly been following Morningstar ratings and diversifying between mutual funds. I've got a few questions, considering I'm at the point where I might want to rethink my investing paradigm (especially given Piecake and GhaleonEB's advice). This is my breakdown so far:
1. I designated about 25% of my take-home pay each month for investing; I recently bumped that to 40%.
2. I have a savings account of 15k for liquidity purposes, which is essentially my "shit, my 1994 Toyota Corolla just exploded on the highway" fund. I'm wondering if this is too much money allocated purely for savings.
3. I max my Roth IRA each year, currently valued at 32.5k. The breakdown's 40% USBXS (sadly, a 1% expense with average fee levels) and 60% USAWX (1.25% expense, average fees, but a 5-star silver on Morningstar). Note that I'm currently in the military, so "401k matching" doesn't apply to me, but there just might be a pension at the end of the road, possibly, maybe, if the U.S. doesn't slash it to pieces first.
4. My investment portfolio is valued at about 105k and contains six funds. All are no-load funds. Four are NTF funds-- TIVRX (0.96%, average, 35% to), USBLX (0.96%, above avg, 5% to), USAWX (1.25%, avg, 12%), and USNQX (a NASDAQ-100 Index fund; 0.71%, below avg, 10%). Two are TF funds-- TRSGX (0.69%, low, 46%) and RYSEX (1.13%, below avg, 31%).
I've got about 25k in USBLX, 25k in USAWX, and the rest evenly distributed amongst the rest.
After actually realizing how might I might be eating on fees and the like, and also realizing that with my current brokerage account I can't buy Vanguard, I'm considering getting a Vanguard account and start investing there in parallel? Right now I'm running a 20k unrealized gain, so I doubt I want to sell anything off. Basically, my questions amount to:
(1) Should I adjust anything I'm doing?
(2) How should I handle my Roth IRA investment this year? Buy into more of the funds I have, purchase 5.5k of a new fund altogether, or sell off what I have and buy one index fund and call it a day, if that's possible?
(3) Do I have too many funds in play?
(4) Is it worth opening a Vanguard account in parallel without selling off existing securities so that I have more capital to take advantage of?
1. I designated about 25% of my take-home pay each month for investing; I recently bumped that to 40%.
2. I have a savings account of 15k for liquidity purposes, which is essentially my "shit, my 1994 Toyota Corolla just exploded on the highway" fund. I'm wondering if this is too much money allocated purely for savings.
3. I max my Roth IRA each year, currently valued at 32.5k. The breakdown's 40% USBXS (sadly, a 1% expense with average fee levels) and 60% USAWX (1.25% expense, average fees, but a 5-star silver on Morningstar). Note that I'm currently in the military, so "401k matching" doesn't apply to me, but there just might be a pension at the end of the road, possibly, maybe, if the U.S. doesn't slash it to pieces first.
4. My investment portfolio is valued at about 105k and contains six funds. All are no-load funds. Four are NTF funds-- TIVRX (0.96%, average, 35% to), USBLX (0.96%, above avg, 5% to), USAWX (1.25%, avg, 12%), and USNQX (a NASDAQ-100 Index fund; 0.71%, below avg, 10%). Two are TF funds-- TRSGX (0.69%, low, 46%) and RYSEX (1.13%, below avg, 31%).
I've got about 25k in USBLX, 25k in USAWX, and the rest evenly distributed amongst the rest.
After actually realizing how might I might be eating on fees and the like, and also realizing that with my current brokerage account I can't buy Vanguard, I'm considering getting a Vanguard account and start investing there in parallel? Right now I'm running a 20k unrealized gain, so I doubt I want to sell anything off. Basically, my questions amount to:
(1) Should I adjust anything I'm doing?
(2) How should I handle my Roth IRA investment this year? Buy into more of the funds I have, purchase 5.5k of a new fund altogether, or sell off what I have and buy one index fund and call it a day, if that's possible?
(3) Do I have too many funds in play?
(4) Is it worth opening a Vanguard account in parallel without selling off existing securities so that I have more capital to take advantage of?
I'm currently 50/50 US/International, which I thought was closer to the total world equity market value; Vanguard's global fund is 53% US. Why do you suggest a 67/33 split? I plan to re-evaluate the balance next year.
My vanguard 2050 target plan is up a nice 15% this year alone. Started late but I'll be sure to max out my IRA each year from now on (try to get it maxed as soon as I can...)
I'd invest more if I was working a better paying job (probably the difference, if not more) so that is down the road.
I'd invest more if I was working a better paying job (probably the difference, if not more) so that is down the road.
Despite the fact that I recognized almost all the words in that post, I did not understand a single thing. o.0
Sweet hebus...
The high rise is due to a bit of a bubble right now, one I missed out on some due to a contract change and me puttng my retirement money in the bank for a few months due to fear of default. (I thought the Tea Party House would be dumb enough to default the country)
The only way you get ahead in this society in general, is to invest in the things the 1% does, which is stocks. An index fund is the lowest-risk way to invest in stocks, which is why it's good.
I do think it's ok to put part of your money in a specialized index fund like Developing Countries or Energy if you believe that sector will out-perform the market, but that is a risk and you shouldn't do it with all of your money.
https://personal.vanguard.com/pdf/icriecr.pdf
This basically suggests that that 30-40% international is the ideal range. No idea if that will be true in the future, but it can't hurt to follow it.
I actually am about 60/40 as well. I really don't mind slightly over-weighting US stocks as well, especially since the biggest are international companies.
bobbyrawlins
Banned
This looks like a good place to ask some advice. Let me preface this by saying I have absolutely zero knowledge about investment practices.
I had a 401K plan through Mercer with my previous job. I was laid off late last year and subsequently started going back to school. I'm a full-time student right now with no job presently. At the moment I have a vested balance of about 5600. My question is should I leave that money in that retirement plan as they stated I could or should I move my money to an IRA? Or is there a better option I'm not aware of?
I had a 401K plan through Mercer with my previous job. I was laid off late last year and subsequently started going back to school. I'm a full-time student right now with no job presently. At the moment I have a vested balance of about 5600. My question is should I leave that money in that retirement plan as they stated I could or should I move my money to an IRA? Or is there a better option I'm not aware of?
Not necessarily. If 15k is about 3-6 months of expenses for you then that would be the right amount.
I would definitely switch to index funds because those two funds would have to beat the index fund by 1.05% annually to make it worthwhile. That is likely not going to happen. Moreover, Morningstar ratings are worthless. That is based solely on past performance. If we could pick the right fund based on past performance we would all be rich.
I will give you example of how much it is costing you. If you continue to contribute 5,500 a year to your Roth IRA and it earns a return of 7.10% for 30 years, your account would be worth 802k if you switched to index funds. If you continue to invest in your two funds above it will be worth 640k.
2) I would definitely continue to fully fund your Roth IRA but invest in index funds, sell your other funds and invest that 32.5k in index funds as well
3) I don't think the amount of funds really matters. I think your issue is that you simply tried to cover all of the sectors and the morningstar ratings without looking at anything else. You can have a lot of funds if its part of a strategy that makes sense - something like a value tilt, etc, but if you do (i dont) these funds should still be a lot cheaper than what you have.
4) As for what to do with your taxable account, if you don't contribute to it anymore and get a return of 7% a year, it will be worth 603k in 30 years (guessed about an average 1% expense ratio. If you switched to index funds you would get 800k. Obviously it won't work out exactly like this, but I just wanted to give you a picture of how much these fees could cost you.
Therefore, you need to make the decision if its worth paying the capital gains tax on that 20k to switch to index funds. I have no idea what your tax situation is and how long you are going to keep these investments so I can't answer it. I definitely wouldn't contribute any more money to these funds though.
As for Vanguard, if your brokerage offers low cost index funds then its not really necessary. If your brokerage charges for the Roth IRA and charges transaction fees for each index fund purchase then it might be worth it if you sell off all of your funds and move to index funds. If not, then you gotta decide if its worth the hassle to have two different brokerage accounts. I mean, you can easily do that and you won't be penalized for it. Its just that most prefer to have everything consolidated.
I would switch it to an IRA because your 401k likely has account management fees, etc that you are still paying for and an IRA gives you complete freedom in what to invest. So if your 401k is invested in some shitty, expensive funds, rolling it into an IRA will allow you to fix that.
Advocatus Diaboli
Member
This is a huge "goddamn" moment, and I want to thank you for this. I owe you some beer at some point in the future. This, right here, is something that every investor needs to know, as well as the fact that screwing around with securities inside your Roth IRA does not create a taxable event. Admittedly, that makes sense when you think about it, but I hadn't even considered it until this thread.
Piecake said:
Me either. Depends on if I get fired this June, which is possible.
In any case, thanks for the back of the envelope advice. If anything, it's gotten me off my ass to accept that compounding is great, but can cut against you if you're not diligent and intelligent even when you're just starting out, like I am.
RustyNails
Member
SOLD EVERYTHING
Dow sinking is insane...I will rebuy after market settles. Maybe?
Dow sinking is insane...I will rebuy after market settles. Maybe?
You sold your IRA/401K?
fuzzylogic
Member
So, since things are dipping. Would now be a good time to "buy in" to a Vanguard account and invest 50/50 US Index/International Index a la Pie's advice?
This would be a pretend that money no longer exists thing, leaving it to lie until retirement (and move to bonds as retirement approaches like Pie suggests).
Also, thank you for the thread Pie, it's been really enlightening.
This would be a pretend that money no longer exists thing, leaving it to lie until retirement (and move to bonds as retirement approaches like Pie suggests).
Also, thank you for the thread Pie, it's been really enlightening.
Timing the market is supposed to be bad and just try to get in when you can. In addition, continue buying when stocks are tumbling is the easiest way to get better returns. I just got in last week and bought kinda high when I rolled over my 401k to Vanguard. So far I lost about 400 bucks but I am in it for the long haul so I know that, while it might lose value in the short term, we just need to know that stock trends will always be up on the long run. So as hard as it sounds I will believe in the funds that I purchased.
On a separate note though, my allocation went 60 to 40 between Total Market and International market. I want to do a reallocation but since I just went in a week ago is it too soon? I lost more percentages actually in International Market but I dunno if that constitutes as not trusting the fund.
RustyNails
Member
No just the mutual funds.
Why did you sell? To invest in index funds or to get out of the market? If it was to get out of the market that is probably the worst decision you can make when investing, especially for long term investments. You never want to sell low and try to time the market. You are doing both things right now. Thats bad. Thats how you lose money or lose out on returns
Right now is always the best time to invest for retirement. I know its tempting to try to hit the market on a slump, but its not worth it because it rarely works, and usually backfires on you in loses or reduced returns. In 40 years, you buying your first few thousand dollars worth of investment a few bucks cheaper is not going to any difference.