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[firebricks3]

Maybe someone here can help me with this one. I tried setting up a Roth IRA last year and the person who set it up put me into a traditional one instead. I make too much to get a tax refund on it. I called them up today to see if I could convert it to Roth but the hit would be in the ~$3k range. Should I leave it as traditional or should I still convert it?

 

[embalm]

Maybe someone here can help me with this one. I tried setting up a Roth IRA last year and the person who set it up put me into a traditional one instead. I make too much to get a tax refund on it. I called them up today to see if I could convert it to Roth but the hit would be in the ~$3k range. Should I leave it as traditional or should I still convert it?

I feel like I still have my retirement training wheels on, but I'll see if I can answer your questions.

When you say you make too much to get a tax refund, I assume you're talking about the tax deduction of Traditional IRA. Be aware that Roth IRAs have contribution limits. So you might make too much to contribute to one of those, which means a Traditional IRA, even without tax deductions, could be your alternative.

Do you know what your $3,000 cost of conversion consists of? I am assuming it is taxes on your earnings. You will have to pay taxes on the earnings from your traditional IRA. The big advantage of having a ROTH over a traditional is that you won't have to pay taxes on your Roth's earnings.

So you have to pay $3,000 in taxes now to convert. If you let let the account continue to grow you will end up paying a lot more in taxes when you withdraw it in retirement. You will lost out on some compounded interest, since you will be investing a smaller amount into your ROTH, but it is usually worth it.

If you want to double check your numbers, bankrate has some calculators for this kind of thing. I had a similar problem and the calculations showed that I was better off keeping the money in my traditional IRA, but I then opened a Roth IRA which I now contribute to instead of the Traditional.

What it boils down to is:

Roth : Invest smaller amount, but never have to pay taxes
Tradition : Invest current (higher) amount, and pay taxes when you withdraw the money in retirement.

Edit:
This is the calculator you're looking for
http://www.bankrate.com/calculators/retirement/convert-ira-roth-calculator.aspx

 

[Piecake]

25, just graduated law school, and about to start working my first "real" job in the next few weeks. Anyone good with personal finance (savings/student loans/etc.) I can PM to try to work out some numbers/ideas? Given my student loan situation (it's bad, coming out of law school) I just want to go over some numbers.

I can try. You can shoot me a PM if no one has helped you out yet.

 

[The Llama]

I can try. You can shoot me a PM if no one has helped you out yet.

Thanks, I actually got a friend to send me a really helpful Excel spreadsheet he's made so I should be ok. Also just found out that my law school will cover all my student loan payments since I'm doing public interest/government work, so that's legit.

I guess my one question is, I'm 25 now. Job I'm going to gives me a pension (who knows if I'll be there long enough for it to vest, or whatever the right term is), but I'm not sure if they have a 401k. What should I do? Assuming I can have ~$800 "free" every month (after budgeting for rent, food, utilities, etc.), how much should I start saving for retirement? I know the right answer is "all of it, you idiot!" but I'm trying to work out a budget and leave a few hundred free every month for stuff that comes up. So is something like $500 a month good? And what would I even do with it? Lol.

 

[Piecake]

Thanks, I actually got a friend to send me a really helpful Excel spreadsheet he's made so I should be ok. Also just found out that my law school will cover all my student loan payments since I'm doing public interest/government work, so that's legit.

I guess my one question is, I'm 25 now. Job I'm going to gives me a pension (who knows if I'll be there long enough for it to vest, or whatever the right term is), but I'm not sure if they have a 401k. What should I do? Assuming I can have ~$800 "free" every month (after budgeting for rent, food, utilities, etc.), how much should I start saving for retirement? I know the right answer is "all of it, you idiot!" but I'm trying to work out a budget and leave a few hundred free every month for stuff that comes up. So is something like $500 a month good? And what would I even do with it? Lol.

10-15% of your income is a decent number to shoot for if you have no idea how much you want to invest, and don't want to save and invest'all of it'. As for what you should do with it, I would either stick it in your employer's retirement fund (so 401k, 403b, or whatever the heck public defenders or something get). If that isnt an option, open up an IRA on your own, pick the funds listed in the OP and start investing.

 

[The Llama]

10-15% of your income is a decent number to shoot for if you have no idea how much you want to invest, and don't want to save and invest'all of it'. As for what you should do with it, I would either stick it in your employer's retirement fund (so 401k, 403b, or whatever the heck public defenders or something get). If that isnt an option, open up an IRA on your own, pick the funds listed in the OP and start investing.

Thanks, I don't *think* they have a 401k but I'm not 100% sure. Honestly think I'll just wait 2-3 months to get settled in then look into an IRA. My parents are reaaaally pushing me to buy a house rather than rent (they'll front the down payment), so the fact that I'll be building up equity so young is helpful to me too.

 

[embalm]

Thanks, I don't *think* they have a 401k but I'm not 100% sure. Honestly think I'll just wait 2-3 months to get settled in then look into an IRA. My parents are reaaaally pushing me to buy a house rather than rent (they'll front the down payment), so the fact that I'll be building up equity so young is helpful to me too.

You should really look into the pros of renting before you make the decision to buy.

Buying a home early can be a huge drain on your money and time. Some people say to buy early in life because your home is an investment, but it is a terrible investment that doesn't even always keep up with inflation; When comparing it to stocks, retirement funds, or other real long term investments you are pretty much losing money.

The NYTimes has a great calculator that highlights the actual cost of buying a home compared to renting.
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0


I bought my first house at 30 years old. I invested some of the money I had saved by renting into an IRA. My IRA allowed me to use $10k towards the purchase of my first home, penalty free. So by renting I actually made more money through investing then I would have equity in a home, and I still got to apply a portion of those investment profits to my home purchase.

 

[Piecake]

Thanks, I don't *think* they have a 401k but I'm not 100% sure. Honestly think I'll just wait 2-3 months to get settled in then look into an IRA. My parents are reaaaally pushing me to buy a house rather than rent (they'll front the down payment), so the fact that I'll be building up equity so young is helpful to me too.

I would treat home ownership as a lifestyle choice rather than a financial decision, mostly because financially renting or buying historically averages out to be a wash. Obviously this can be different in specific markets, but those markets can change over time. Of course, if your parents are giving you a zero interest loan to fully cover a down payment then that might be financially worth it.

If you want a home and, most importantly, you dont plan on moving for quite a while, then I would buy a home. If not, then dont.

 

[tokkun]

I think the last bit to add about a house as an investment is that it really concentrates your savings in a single investment, and that exposes you to a lot of risk. Much of the advice in this thread about buying total market indices is focused on diversifying your investments to reduce risk.

I agree with Piecake's advice that it should be viewed from a lifestyle perspective. It's not a bad idea to try renting a house first to see if you are into it. Personally I was not a fan of mowing the lawn, raking leaves, shoveling snow, or having to drive everywhere.

 

[The Llama]

Re: the home buying

I should add, I'm not 100% on it. Really I'm about 50/50 between buying and renting. I've rented an apartment for the past 3 years (plus 2 years during undergrad), so it's not like I've never lived out of my parents bedroom haha, but yeah, it's definitely on another level to own an actual home and deal with all of that. I think part of my problem is also that I'm pretty unhappy with the current rental market in my city (Philadelphia), but yeah. We'll see what happens. Just hard to pass up my parents willing to throw down $25k+ for me, ya know?

 

[PflargBlarg]

Bonus, my grandparents gave me $5000 from the sale of their lake cabin/house as a gift. Nice addition to the RRSP this year.

 

[Darren870]

I think it really depends on where your location is. If you are near a city or even in a city, its likely your home will increase in value nicely over the years. If you live 1.5 - 2 hrs away from a major city, it likely would be beneficial to rent.

 

[Husker86]

You should really look into the pros of renting before you make the decision to buy.

Buying a home early can be a huge drain on your money and time. Some people say to buy early in life because your home is an investment, but it is a terrible investment that doesn't even always keep up with inflation; When comparing it to stocks, retirement funds, or other real long term investments you are pretty much losing money.

The NYTimes has a great calculator that highlights the actual cost of buying a home compared to renting.
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0


I bought my first house at 30 years old. I invested some of the money I had saved by renting into an IRA. My IRA allowed me to use $10k towards the purchase of my first home, penalty free. So by renting I actually made more money through investing then I would have equity in a home, and I still got to apply a portion of those investment profits to my home purchase.

Wow, I'm a lot more better off buying my house than I thought I would be. I mean, I'm in Omaha, NE, so I know house costs are very low compared to other places, but I'd need to rent for less than $500/month to come out ahead renting and that wouldn't get a very nice one bedroom here, let alone a house.

 

[Josh5890]

Where I live and the surrounding area, you cannot rent for less than $800/month. Judging by what I'm looking for (next year), I can buy a condo and pay less than the rent and that will be building equity.

 

[Funkybee12]

I say: Enjoy your life till U retire.

 

[GhaleonEB]

I say: Enjoy your life till U retire.

I think most of us would agree. This thread is about making sure we can enjoy our life after we retire.

 

[TangoAlphaLima]

Wow, I'm a lot more better off buying my house than I thought I would be. I mean, I'm in Omaha, NE, so I know house costs are very low compared to other places, but I'd need to rent for less than $500/month to come out ahead renting and that wouldn't get a very nice one bedroom here, let alone a house.

I'm in KC, and it's the same for me. Rental rates would have to be about half the market rate for it to be advantageous to rent versus own. Throughout most of the Midwest, it's pretty skewed toward home ownership. It's the coasts and various other big metro areas where it tips the other way.

I say: Enjoy your life till U retire.

Much advice. Very information.

 

[Mr.Mike]

I say: Enjoy your life till U retire.

Even outside of retirement, there is a comfort in having some money in case things don't go as well as you might have hoped.

And also retirement can maybe be sooner rather than later, if you care to put the effort in.

 

[Afrodium]

I just recently started earning enough dough to start thinking about retirement savings, so this thread is great.

I've got a 401k and my company matches 60% of 6%. At the moment I've got a little over 1K in it (only been working since the summer). Since I'll almost definitely be in a higher tax bracket when I retire I'm thinking that I should either convert my 401k to a Roth 401k or open one up outside of my company. I'd have to pay taxes on what's in my current 401k if I converted, but so little is saved that it might be worth it. I'd also get charged for touching my funds and they don't match on a Roth 401k so I'm leaning towards not touching my current 401k and opening up a Roth elsewhere.

However, the OP heavily recommends index funds. If I open a Roth can I allocate my savings into those funds? Would I be better off just directly investing in those funds and not opening the Roth? I probably don't have enough savings at this point to have a 401K, a Roth IRA, and invest in stocks (especially when the Vanguard one requires 3K to start).

 

[Piecake]

I just recently started earning enough dough to start thinking about retirement savings, so this thread is great.

I've got a 401k and my company matches 60% of 6%. At the moment I've got a little over 1K in it (only been working since the summer). Since I'll almost definitely be in a higher tax bracket when I retire I'm thinking that I should either convert my 401k to a Roth 401k or open one up outside of my company. I'd have to pay taxes on what's in my current 401k if I converted, but so little is saved that it might be worth it. I'd also get charged for touching my funds and they don't match on a Roth 401k so I'm leaning towards not touching my current 401k and opening up a Roth elsewhere.

However, the OP heavily recommends index funds. If I open a Roth can I allocate my savings into those funds? Would I be better off just directly investing in those funds and not opening the Roth? I probably don't have enough savings at this point to have a 401K, a Roth IRA, and invest in stocks (especially when the Vanguard one requires 3K to start).

I definitely wouldnt touch your 401k. Your tax rate 40 years from now is unknown, and it most likely is not going to make much of a difference whether it is a Roth or traditional. I definitely would not incur penalties to convert to a Roth.

Is there any specific reason why you wouldn't want to invest through a Roth IRA? Do you want to save up for a house or something?

If there is no specific reason then if I were you I would open up an Roth IRA and invest in the index funds (I would personally forgo the bonds) in your Roth IRA. So yes, you can allocate the money you move into your Roth IRA into those funds. Just think of the IRA as a vehicle, the people in the vehicle as investments, and you get to choose whoever the hell you want goes into your car.

 

[tokkun]

However, the OP heavily recommends index funds. If I open a Roth can I allocate my savings into those funds? Would I be better off just directly investing in those funds and not opening the Roth? I probably don't have enough savings at this point to have a 401K, a Roth IRA, and invest in stocks (especially when the Vanguard one requires 3K to start).

You should always max out the Roth IRA before putting money into an after-tax investment account. You can withdraw from the Roth account without penalty if you need to, so there is no drawback compared to an after-tax account.

 

[Afrodium]

Thanks for the tips. So if my company only matches on 6% of my 401k should I only contribute 6% and then max out a Roth IRA before continuing to contribute to the 401k?

 

[Darren870]

Thanks for the tips. So if my company only matches on 6% of my 401k should I only contribute 6% and then max out a Roth IRA before continuing to contribute to the 401k?

Yes, that is the general rule of thumb.

1. Contribute to your companies 401k up to the match
2. Max out Roth IRA
3. Contribute to your 401k to the Max
4. Be happy, you will be financially set come retirement age.

 

[Wellington]

May not be the best place for this question but what do you guys think of high dividend yield investing? I'm considering adding VHDYX, the Vanguard High Dividend Yield Index Fund, to my roster as an attempt to generate more passive income. I'd probably dump in the minimum $3k then just include it as part of my monthly allocation.

Here is the fund: https://personal.vanguard.com/us/funds/snapshot?FundId=0623&FundIntExt=INT#tab=0

Yield is at 3%, the fee though is at 0.18%. I am very attracted to the prospect of gaining an automatic 3% head start on my year over year returns. Does anyone focus on dividend stocks, or high yield dividend funds? If so what do you recommend?

I know companies like Coca Cola and Exxon are popular for their yield, but I would like to stay away from individual stocks.

 

[RumblingRosco]

-

 

[Dynasty]

My parents have invested in property by the time they retire they will have a house with no mortgage and one with low. Along with a bit of saving and a £30k life insurance. Personally I'll probably follow the same plan and it would probably be easier for me since my parents want to transfer one of the houses to me in the future. Wouldn't even attempt to do stocks looks to risky.

 

[RumblingRosco]

-

 

[GhaleonEB]

May not be the best place for this question but what do you guys think of high dividend yield investing? I'm considering adding VHDYX, the Vanguard High Dividend Yield Index Fund, to my roster as an attempt to generate more passive income. I'd probably dump in the minimum $3k then just include it as part of my monthly allocation.

Here is the fund: https://personal.vanguard.com/us/funds/snapshot?FundId=0623&FundIntExt=INT#tab=0

Yield is at 3%, the fee though is at 0.18%. I am very attracted to the prospect of gaining an automatic 3% head start on my year over year returns. Does anyone focus on dividend stocks, or high yield dividend funds? If so what do you recommend?

I know companies like Coca Cola and Exxon are popular for their yield, but I would like to stay away from individual stocks.

I had an income focus early on, with high income bond and equity funds. Several years ago I did a comparison of how my overall portfolio would have fared had I been in index funds instead and it wasn't pretty, which is when I cut over. I can see the appeal if I'm in or near retirement and want to stabilize while generating income, but not before then.

 

[Darren870]

May not be the best place for this question but what do you guys think of high dividend yield investing? I'm considering adding VHDYX, the Vanguard High Dividend Yield Index Fund, to my roster as an attempt to generate more passive income. I'd probably dump in the minimum $3k then just include it as part of my monthly allocation.

Here is the fund: https://personal.vanguard.com/us/funds/snapshot?FundId=0623&FundIntExt=INT#tab=0

Yield is at 3%, the fee though is at 0.18%. I am very attracted to the prospect of gaining an automatic 3% head start on my year over year returns. Does anyone focus on dividend stocks, or high yield dividend funds? If so what do you recommend?

I know companies like Coca Cola and Exxon are popular for their yield, but I would like to stay away from individual stocks.

I used to have AT&T and PFE because of this. Both were decent blue chip stocks as well. However, I probably only really did well since both got hit hard after the GFC and I bought them after that. They were both good paying divided stocks before hand and continued during and after (though had some cuts).

Its probably not worth it though at a young age. Like GhaleonEB said, in an old age a good blue chip dividend paying stock is a nice boost to the portfolio and retirement.

 

[tokkun]

Whenever you start slicing and dicing stocks rather than going with a total market allocation, you need to have a good answer for one of two questions:
1. Why is the market underpricing these stocks?
or
2. What is different about my situation compared to others that would make these stocks more attractive?

There is an argument to be made that high-yield stocks ought to be priced more attractively for use in tax-sheltered accounts since non-tax-sheltered investors need to immediately pay tax on dividends. However the long-term results of high-yield indices seem to be less than that of the total market, so that logic has not really worked out - probably because people assume that high-yield stocks are less volatile. If you're looking to reduce the volatility of your stock holdings, you're probably better off increasing your bond allocation, increasing your diversity rather than decreasing it.

 

[draetenth]

This isn't quite retirement related, but the thread about 62% of Americans having less than $1,000 in savings had me thinking about my own. I'm just starting to figure this stuff out myself so I wanted to see what the more experienced think before I did anything too hastily.

I have most of my funds in several of Vanguard's index funds and a roth ira, however I currently have $5,000 sitting in the savings account I have at my credit union for rainy days/emergencies. I get an apr/dividend rate of .15% on the money which doesn't really strike me as good (I'm basically losing money to inflation right?). I was trying to decide if I'm better off doing something with that money. I think there are four things I can do:

1) Nothing, keep it in my Savings Account earning that .15% dividend. I have a checking account too, but that earns .10% so I'm ruling that out. There aren't any rules to the Savings Account, I can move money in and out of it as often as I want with no fees and no restrictions.

2) Open a Money Market Fund and move the money from the Savings Account to it. The Money Market's rate is .20% (credit union says this is declared weekly). No withdrawal fees, but it must be at least $20 minimum (no maximum that I see) and there can't be more than six withdrawals/transfers out of the fund (there doesn't seem to be a limit to how much i put in). I would have to close this account in writing, but it looks like these funds are federally insured by the National Credit Union Administration (NCUA) up to a total of $250,000 for all shares.

3) Open a CD/Certificate, I get a higher rate on it (currently the shortest is three months at .25%, but at the same time since I couldn't access it right away, it seems to defeat the purpose of it being emergency funds.

4) Move it to my non-roth IRA Vanguard index funds I have. I would earn more money on dividends, but that seems more of a long-term thing. Things in Vanguard so don't seem to be doing so well, so I would imagine that if I kept my emergency funds there, I would lose out at the moment and pay fees on top of it for withdrawing.

Thoughts? I'm currently thinking of doing option 2 (opening a money market fund at my credit union and moving the money from savings to it) since it gives better rates than just keeping it in savings. Since this is my rainy day/emergency fund for anything that can pop up, options 3 (can't withdraw early without penalties) and option 4 (fees, and if the market is down like now I would be losing out) don't seem to be a good fit.

 

[simplayer]

If you want it to still be fairly liquid, you could go with online savings accounts. Ally and one other gets you around 1% APR

 

[chaosblade]

You want to keep that emergency savings available, and it should have high liquidity. No CDs, savings bonds, etc. A savings account with a decent interest rate is a good low-effort option (agree that Ally is a solid option, there are others too with ~1% or more).

Another option I know some people like is having enough available credit to eat the immediate cost of an emergency, then sell investments (index funds) to pay that off. Investing is obviously riskier, especially in the short term, but you have much greater potential growth in the long term.

Beyond the emergency savings (however much you deem necessary), you probably want to be investing unless you are saving up for something specific in the short(-ish) term. The general recommendation is going to be to get your company match on a 401K, then fully fund your own IRA, then add more to your 401K, then if you are maxing that out, have a taxable/non-retirement investment account. At that point you are already investing over $20k a year though, most of us plebs can't afford that

Personally, I do the company a match and then some and max my Roth, but I don't max my 401K before putting money into a taxable account so that I (might eventually) use it before retirement. Be it for a house, or a car, or maybe I'll just keep putting money away and possibly use it to retire a little early.

 

[Darren870]

My credit card is my "emergency account". As chaosblade said, don't put it into something you can't sell right away. My emergency funds are in things I can sell and get access to the funds by the time my next credit card statement hits.

Otherwise, you are right. Its losing value with inflation. There is no reason you can't put that money into your Roth IRA towards the yearly limit. That money is always withdraw able penalty free.

However, I think it also depends on what you current savings/spending habits are like. I mean if you had to fork over $400 for new tires would you be able to adjust your habits that month so you wouldn't have to touch that $5000? Or if you got hit with that expense then you would have to go into that $5000? If the latter is the case then I would probably put only half of that outside a savings account.

Reason being, is you will start getting hit with transaction or buy sell fees which totally defeats the purpose of moving it in the first place.

I am able to save quite a bit a month so it would have to be a massive expense for me to touch other accounts instead of paying it off the next credit card statement.

 

[Wellington]

Thank you for the good words regarding dividend paying stocks gents. I mistakenly thought that high yield stocks produced outsized gains versus others.

 

[tokkun]

Personally, I do the company a match and then some and max my Roth, but I don't max my 401K before putting money into a taxable account so that I (might eventually) use it before retirement. Be it for a house, or a car, or maybe I'll just keep putting money away and possibly use it to retire a little early.

You might want to look into whether your 401K plan supports after-tax 401k contributions and withdrawals. If it does, you can take that income you are currently putting in the taxable account (up to somewhere in the $25-50K range), use it as after-tax 401K contributions, then immediately roll it into your Roth IRA. This is the so-called "Mega Backdoor Roth IRA".

The reason this is advantageous is that you always have the option to withdraw money from your Roth IRA without penalty, so it is no worse than the taxable account, but as long as you leave the money in the IRA it will compound tax-free. Keep in mind that you will get taxed on earnings you withdraw before age 60, but again this is no worse than the taxable account.

 

[jesalr]

My account is -£4 today. Highest it's been in a long time. Just off positive.

 

[Dot50Cal]

Need some advice here -- My company only has an S&P index fund. There are no other index funds in our 401k that aren't managed. Curious what the thought is about going all in on this and then opening a roth IRA and focusing on the international index funds all in?

 

[Piecake]

Need some advice here -- My company only has an S&P index fund. There are no other index funds in our 401k that aren't managed. Curious what the thought is about going all in on this and then opening a roth IRA and focusing on the international index funds all in?

That is what I would do. If your 401k only has one good fund, then invest in that and get the other fund(s) you feel like you need to diversify with through other means like your Roth IRA.

 

[RumblingRosco]

-

 

[Makai]

Finally broke even. About $50 above.

 

[PflargBlarg]

Still have an energy-based mutual fund hanging around from when I didn't know what I was doing. It's down 25% but I only put 1500 in it initially.

Should I just sell it off and accept the loss next time I add more funds to my account?
Oil based energy isn't exactly in a great position these days. The fund has been hanging around in my account for about 1.5 years I think.

 

[Tesseract]

i wouldn't bother, probably won't need one in 20 years

 

[demosthenes]

i wouldn't bother, probably won't need one in 20 years

Great contribution.

 

[tokkun]

Still have an energy-based mutual fund hanging around from when I didn't know what I was doing. It's down 25% but I only put 1500 in it initially.

Should I just sell it off and accept the loss next time I add more funds to my account?
Oil based energy isn't exactly in a great position these days. The fund has been hanging around in my account for about 1.5 years I think.

Try to avoid viewing it as "accepting a loss". Unless you are doing tax loss harvesting, you should view the loss as occurring the minute it dropped in value. I know there are a lot of people who say that it is not a loss until you sell, but that is rubbish. It makes you more likely to fall victim to loss aversion bias and the gambler's fallacy.

 

[Piecake]

Still have an energy-based mutual fund hanging around from when I didn't know what I was doing. It's down 25% but I only put 1500 in it initially.

Should I just sell it off and accept the loss next time I add more funds to my account?
Oil based energy isn't exactly in a great position these days. The fund has been hanging around in my account for about 1.5 years I think.

Hard to say, I could be completely off, but research/data suggests that it is better to ditch losers as soon as possible and put it into something more productive. Of course, that also implies that you know something of the future, that energy is going to do poorly for the foreseeable future and that total index fund is going to do better. That seems like something that you can only make a decision on, since no one truly 'knows' what is going to happen, though energy sucking does seem like an okay bet.

You're Canadian, right? This might not apply to you, but in America you can use your loses to offset your gains. This might be useful if you have investments in a taxable account and have dividends dinging your tax bill.

 

[Mr.Mike]

Try to avoid viewing it as "accepting a loss". Unless you are doing tax loss harvesting, you should view the loss as occurring the minute it dropped in value. I know there are a lot of people who say that it is not a loss until you sell, but that is rubbish. It makes you more likely to fall victim to loss aversion bias and the gambler's fallacy.

Even the idea of "loss" or "gain" is kinda weird to me. People talk about having x dollars worth of something and losing or gaining however money dollars. But they're never really losing or gaining anything. They have x units of something and over time the value of those things might change but still they have the same amount of that thing (barring any buying or selling of that thing).

Anyway, I wouldn't worry about how much you've lost or gained from those fund units. Rather, consider whether it would be of greater expected utility for you to own those fund units, or to trade them for something else.

PS. To be honest, maybe this line of thinking isn't the best, but with it I don't really care what the market value of my portfolio is at any particular moment for now. It also makes me really enjoy seeing distributions show up in my account, even though I know logically that it isn't really intrinsically "better" or special in anyway from capital gains/growth in general. I prefer not to think of my investments as some collection of things that have a value that I hope increases, but rather as a bunch of assets that make money for me.

I suspect where this come from is video games where you can buy properties in games and then collect income from them.(And then you would take that income and use it to buy even more properties. Compound Interest!) I really enjoyed buying all of the properties until eventually I had this huge snowballing affect where I had all of the properties and more money than I could ever spend. (I really liked Fable, which tbh is that only game I can remember playing that had such a system. I guess GTA has this sort of thing too but my parents never let me have GTA when I was younger. I did really like Fable). Of course in those games you would never really sell the properties of even know or care about their value after buying them, and so now I go about investing with a similar mindset. Honestly, I'm not really sure I even care about this whole retirement thing so much as I'm seeking to recreate that experience in real life. (Maybe one day I'll own all the financial assets in this game too, and never have to worry about money).

 

[iamblades]

Even the idea of "loss" or "gain" is kinda weird to me. People talk about having x dollars worth of something and losing or gaining however money dollars. But they're never really losing or gaining anything. They have x units of something and over time the value of those things might change but still they have the same amount of that thing (barring any buying or selling of that thing).

Anyway, I wouldn't worry about how much you've lost or gained from those fund units. Rather, consider whether it would be of greater expected utility for you to own those fund units, or to trade them for something else.

PS. To be honest, maybe this line of thinking isn't the best, but with it I don't really care what the market value of my portfolio is at any particular moment for now. It also makes me really enjoy seeing distributions show up in my account, even though I know logically that it isn't really intrinsically "better" or special in anyway from capital gains/growth in general. I prefer not to think of my investments as some collection of things that have a value that I hope increases, but rather as a bunch of assets that make money for me.

I suspect where this come from is video games where you can buy properties in games and then collect income from them.(And then you would take that income and use it to buy even more properties. Compound Interest!) I really enjoyed buying all of the properties until eventually I had this huge snowballing affect where I had all of the properties and more money than I could ever spend. (I really liked Fable, which tbh is that only game I can remember playing that had such a system. I guess GTA has this sort of thing too but my parents never let me have GTA when I was younger. I did really like Fable). Of course in those games you would never really sell the properties of even know or care about their value after buying them, and so now I go about investing with a similar mindset. Honestly, I'm not really sure I even care about this whole retirement thing so much as I'm seeking to recreate that experience in real life. (Maybe one day I'll own all the financial assets in this game too, and never have to worry about money).

This is the important part.

If you are investing properly and aren't going to be retiring any time soon, don't even look at the dollar value of your investments because it is completely irrelevant to you.

It's like Warren Buffett has said, if every day your neighbor gave you a quote to buy your house you wouldn't even pay attention to the numbers, because you know what your house is worth. You need to know the fundamentals of your investments, and as long as those fundamentals remain solid, the quote price dropping should not worry you at all.

The time you should pay attention to the quote prices is when the fundamentals are telling you that it is grossly overvalued. Just as most people would react in the neighbor example. If all of a sudden your neighbor was offering you double what you thought your house was worth, you should maybe think about selling, or at least doing some research to decide if your underlying assumptions are correct.

If the price drops and the fundamentals still look solid, the only thing that should make you think is that you should buy your neighbors house too.

 

[tokkun]

Even the idea of "loss" or "gain" is kinda weird to me. People talk about having x dollars worth of something and losing or gaining however money dollars. But they're never really losing or gaining anything. They have x units of something and over time the value of those things might change but still they have the same amount of that thing (barring any buying or selling of that thing).

Well, you can say that about everything. You wouldn't claim that $100 represented the same wealth in the 19th century as it does today, would you? Yet in both cases it's the same number of units of currency. The idea that the relative value of things changes over time is the foundational concept of investing.

 

[Makai]

Well, you can say that about everything. You wouldn't claim that $100 represented the same wealth in the 19th century as it does today, would you? Yet in both cases it's the same number of units of currency. The idea that the relative value of things changes over time is the foundational concept of investing.

Well put. I'm gonna use this line.