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How to Invest for Retirement

tokkun

Member
Can someone help me clarify something? The first 3 funds listed each have an opening balance of $3k. So if I wanted to do something like the 60/40 split mentioned in the OP, I would have to pony up $6k to start both of those funds?

Also, when I click on the funds it tells me they are available as an ETF. These do not have an opening balance requirement and seem to have lower expense ratio. Obviously I have no idea what an ETF is (and yes, I know what the acronym stands for but that doesn't really clarify anything) and how it compares to the versions linked in the OP.

Deciding to get serious about investing since my (very small) 401k from my previous employer was moved to a terrible company (Total IRA) that is charging me fees for not meeting their $50k minimum balance.

Buying ETFs is fine as an alternative if you don't meet minimum balances. The main knock against ETFs is that buying and selling them is more complicated.

You can also get a 65:35 split with a single fund using Vanguard's LifeStrategy Moderate Growth. That will also give you international diversification and you will not have to do any rebalancing.
 
Can someone help me clarify something? The first 3 funds listed each have an opening balance of $3k. So if I wanted to do something like the 60/40 split mentioned in the OP, I would have to pony up $6k to start both of those funds?

Also, when I click on the funds it tells me they are available as an ETF. These do not have an opening balance requirement and seem to have lower expense ratio. Obviously I have no idea what an ETF is (and yes, I know what the acronym stands for but that doesn't really clarify anything) and how it compares to the versions linked in the OP.

Deciding to get serious about investing since my (very small) 401k from my previous employer was moved to a terrible company (Total IRA) that is charging me fees for not meeting their $50k minimum balance.

ETF just means that it's a mutual fund that is traded as if it's stock in some company instead of like actual mutual funds. In practice, this means the following:

1. No minimum opening balance
2. You can't buy partial shares in ETFs
3. You will be paying transaction fees on every trade you make
4. In general, there will be lower management fees

Besides that, the actual 'contents' of the ETF are exactly the same as the mutual fund equivalent.
 
Finally getting Admiral shares on my non-IRA account. Yay for 0.05 expense ratios!

So, question on this (sorry if it has been answered but I tried going back a page or two, not all 34!:

1. Let's say I put in $5,500 this year and buy the non-Admiral shares because I have more than $3K. When I put in another $5,500 next year, can I convert the non-Admiral shares to Admiral shares without a transaction fee/cost?

2. I just put in $5,500 on my account and my wife's account but haven't bought anything yet. Should I just wait until next year to put it into an admiral account if I contribute $5,500 at the start of the year?

3. What is the going thought on the Vanguard Target Retirement vs. a mix of Vanguard Total US/Int'l Stock? I mean, the Retirement is basically made up of a combination of the two anyway, so that may be easier? Is the benefit of self allocating the opportunity to have a different mix and/or the opportunity to get to Admiral shares?

Really appreciate this thread. I don't follow everything just yet, but it is definitely helpful for how I think about retirement and investing.
 
So, question on this (sorry if it has been answered but I tried going back a page or two, not all 34!:

1. Let's say I put in $5,500 this year and buy the non-Admiral shares because I have more than $3K. When I put in another $5,500 next year, can I convert the non-Admiral shares to Admiral shares without a transaction fee/cost?

2. I just put in $5,500 on my account and my wife's account but haven't bought anything yet. Should I just wait until next year to put it into an admiral account if I contribute $5,500 at the start of the year?

3. What is the going thought on the Vanguard Target Retirement vs. a mix of Vanguard Total US/Int'l Stock? I mean, the Retirement is basically made up of a combination of the two anyway, so that may be easier? Is the benefit of self allocating the opportunity to have a different mix and/or the opportunity to get to Admiral shares?

Really appreciate this thread. I don't follow everything just yet, but it is definitely helpful for how I think about retirement and investing.

1 and 2. Double check, but Vanguard should convert your funds automatically after a period of time. (I know Fidelity does.) Go ahead and invest now with confidence.

3. The target funds will also include a bond (& other "safer" instruments) component that will steadily increase over time. So the target fund would be a replacement for you trying to follow that blend, not just one that is split between domestic and international stock. If the blend in the target is satisfactory to you, then feel free to use it. Just know that it might have a different level of aggression than what you might prefer, which might be higher or lower, or if you want to just allocate your funds differently. Perhaps you prefer less bonds, more stock, less international, more domestic, etc. Or maybe you go the opposite direction and prefer more bonds. But by taking the self-managing approach, you will have to be on top of it just a hair more than you would otherwise, and there's always the chance that you might do something stupid and misallocate your funds. If you don't want to take that risk or spend the time, use the target.
 
1 and 2. Double check, but Vanguard should convert your funds automatically after a period of time. (I know Fidelity does.) Go ahead and invest now with confidence.

3. The target funds will also include a bond (& other "safer" instruments) component that will steadily increase over time. So the target fund would be a replacement for you trying to follow that blend, not just one that is split between domestic and international stock. If the blend in the target is satisfactory to you, then feel free to use it. Just know that it might have a different level of aggression than what you might prefer, which might be higher or lower, or if you want to just allocate your funds differently. Perhaps you prefer less bonds, more stock, less international, more domestic, etc. Or maybe you go the opposite direction and prefer more bonds. But by taking the self-managing approach, you will have to be on top of it just a hair more than you would otherwise, and there's always the chance that you might do something stupid and misallocate your funds. If you don't want to take that risk or spend the time, use the target.
Do you think this will happen if I buy the Vanguard mutual funds via TD Ameritrade? (That's where I put my Roth money because I already had an account with them for stock trading...)

Appreciate your insight into the target fund. I think I'm pretty good with the allocation they have, so I might go that route instead of doing it myself. But that admiral option if I go it alone is pretty tempting. Look at those low expense ratios!
 
Do you think this will happen if I buy the Vanguard mutual funds via TD Ameritrade? (That's where I put my Roth money because I already had an account with them for stock trading...)

Appreciate your insight into the target fund. I think I'm pretty good with the allocation they have, so I might go that route instead of doing it myself. But that admiral option if I go it alone is pretty tempting. Look at those low expense ratios!

In that case, no, I think you would need to move it manually. I would still invest now anyway. though you might come to a different conclusion if the transaction costs of buying and selling are too high. But just on expense, you're talking about a expense ratio difference of hundredths of percent, it's not worth giving up typical gains just to avoid it. I don't know what the transaction cost of trading is with Ameritrade, but just saying it's $10 a trade, then growth of 0.36% on $5500 would offset the cost of 2 trades (buying and selling).

It's close to the end of the year and who knows where the market is heading, but I would go ahead and buy.
 
In that case, no, I think you would need to move it manually. I would still invest now anyway. though you might come to a different conclusion if the transaction costs of buying and selling are too high. But just on expense, you're talking about a expense ratio difference of hundredths of percent, it's not worth giving up typical gains just to avoid it. I don't know what the transaction cost of trading is with Ameritrade, but just saying it's $10 a trade, then growth of 0.36% on $5500 would offset the cost of 2 trades (buying and selling).

It's close to the end of the year and who knows where the market is heading, but I would go ahead and buy.
Unfortunately for mutual funds, it's $50. :/

I am planning on calling them to see if I can negotiate some free trades. Otherwise, I'll have them transfer over to Vanguard for my Roth (and my wife's) and avoid all that nonsense.
 

tokkun

Member
1 and 2. Double check, but Vanguard should convert your funds automatically after a period of time. (I know Fidelity does.) Go ahead and invest now with confidence.

This actually happened to me a couple weeks ago. It was not automatic.

I did not have to pay any fees since it was a tax-sheltered account, but I would be concerned that you might need to pay capital gains when doing the conversion in an after-tax account.
 

Wellington

BAAAALLLINNN'
Do you think this will happen if I buy the Vanguard mutual funds via TD Ameritrade? (That's where I put my Roth money because I already had an account with them for stock trading...)

Appreciate your insight into the target fund. I think I'm pretty good with the allocation they have, so I might go that route instead of doing it myself. But that admiral option if I go it alone is pretty tempting. Look at those low expense ratios!

Me personally I would not buy Vanguard (or Fidelity or whoever) funds through a different brokerage. If you wanted to transfer funds there is a mechanism for it and it has no tax consequences.

You can transfer an IRA from one financial company directly into a new or existing IRA at another company (a "trustee-to-trustee" transfer) as often as you need to without any tax consequences. These transfers are convenient electronic transactions with typically no checks involved. If you have a special situation that may not allow for an easy direct transfer, we recommend that you consult a tax advisor.

https://investor.vanguard.com/account-transfer/transfer-ira
 

Mr.Mike

Member
Curious, does anyone choose their asset allocation based on their portfolio value rather than time to retirement? I'm thinking I might do something like such. Basically I started by coming up with what asset allocation I would be comfortable with at various points and then fitting a curve to those points.

hyuYRNQ.png

It's something I think that makes more sense if you're going for an early retirement but don't have a fixed time you would like to retire by, rather than planning to retire at some specific age. Early on you wouldn't have much and would really need to focus on growth to reach your goals and so you would have a high allocation to equity. But as your portfolio grows you wouldn't need to take as much risk to reach your goals and so you would increase your allocation to bonds.

Thoughts?

PS. I used 10% bonds at $10,000 , 20% bonds at $100,000 and 40% bonds at $1,000,000. But really you could use any points and fit a curve to it.
 
i tried signing up for a Vanguard account but the identity questions couldn't verify.. where else can i go?

I had the same thing happen, I imagine due to being a young person with no real credit. I think I had to email them some stuff like a copy of my license or something. I don't remember it being too bad. Or just go to Fidelity, they seem pretty comparable.
 
I had the same thing happen, I imagine due to being a young person with no real credit. I think I had to email them some stuff like a copy of my license or something. I don't remember it being too bad. Or just go to Fidelity, they seem pretty comparable.

i have a credit score of 800+ and i answered the questions.. maybe ill give them a call
 
Buying ETFs is fine as an alternative if you don't meet minimum balances. The main knock against ETFs is that buying and selling them is more complicated.

You can also get a 65:35 split with a single fund using Vanguard's LifeStrategy Moderate Growth. That will also give you international diversification and you will not have to do any rebalancing.

Almost a year working and establishing an emergency fund, I finally started my retirement fund. My company doesn't match 401k so I started a Roth IRA and invested $5500 into said fund. Is.. is that all? Now I just sit back and wait for the next fiscal year to contribute and possibly reallocate funds? =O

I set dividends and capital gains to reinvest. That means any money gained goes back into the fund, correct? What's the argument against reinvesting, having more control?
 

tokkun

Member
Almost a year working and establishing an emergency fund, I finally started my retirement fund. My company doesn't match 401k so I started a Roth IRA and invested $5500 into said fund. Is.. is that all? Now I just sit back and wait for the next fiscal year to contribute and possibly reallocate funds? =O

I set dividends and capital gains to reinvest. That means any money gained goes back into the fund, correct? What's the argument against reinvesting, having more control?

If you want to contribute more, you can put money into that 401k. Even if you are not getting matching funds, you'll still get the tax advantages.

I guess one argument against reinvesting would be if the fund was down and you intended to sell it and utilize tax loss harvesting, then reinvesting dividends would trigger wash sale rules. That is not something the average investor should worry about, though.
 

Morts

Member
Here's a question for the group: do index/mutual funds make any sense for shorter term investing? (Also I forgot the difference between index and mutual funds). I'll probably be looking for a bigger house in 2-3 years and since I'm already set up with Vanguard I thought maybe I could buy one of their funds outside of my Roth IRA. Would that be dumb?
 
Here's a question for the group: do index/mutual funds make any sense for shorter term investing? (Also I forgot the difference between index and mutual funds). I'll probably be looking for a bigger house in 2-3 years and since I'm already set up with Vanguard I thought maybe I could buy one of their funds outside of my Roth IRA. Would that be dumb?

A short downturn, even a mild one, could significantly cut into your down payment if you're looking at needing the funds in 2-3 years. You'd best steer clear of a significant exposure to stocks with these funds, or have a fallback plan if things turn south.

Maybe something like the Vanguard Target Retirement Income Fund, which is geared towards people already in retirement and is split roughly 30/70 stocks/bonds. It is still susceptible to downturns, but where the broader market lost ~60% in the 2007-2009 drop, this fund was down ~20%.
 
Here's a question for the group: do index/mutual funds make any sense for shorter term investing? (Also I forgot the difference between index and mutual funds). I'll probably be looking for a bigger house in 2-3 years and since I'm already set up with Vanguard I thought maybe I could buy one of their funds outside of my Roth IRA. Would that be dumb?

There's definite risk to investing when you're looking at needing that money in the short term, as in the 2 to 3 year window you mentioned. I don't think many financial advisers would recommend putting that money in any vehicle that could lose money; they'd probably suggest sticking it in a money market fund that has virtually no risk, but also pays out very little.

Ultimately, it's your own choice, though. You know your situation better than anyone else. If the market tanks in two years, and takes your money with it, are you okay waiting another 5 years for it to rebound before buying that bigger house? Or do you actually need that bigger house in 2-3 years, and therefore can't tolerate risk?
 

massoluk

Banned
Anyone knows Stadion? How is their reputation, really? They are the fund manager for my company's 401k.

My company match up to 4% of my wage contribution. Up till now I was fine just upping it to 8%, figuring heck, it's not like I'm doing anything with my money. But they have been on the losing streak this past year. I'm thinking of just lowering it down 4% and just use the left over to buy VOO index off Tradeking.
 

Morts

Member
A short downturn, even a mild one, could significantly cut into your down payment if you're looking at needing the funds in 2-3 years. You'd best steer clear of a significant exposure to stocks with these funds, or have a fallback plan if things turn south.

Maybe something like the Vanguard Target Retirement Income Fund, which is geared towards people already in retirement and is split roughly 30/70 stocks/bonds. It is still susceptible to downturns, but where the broader market lost ~60% in the 2007-2009 drop, this fund was down ~20%.

This all makes sense, thanks guys.
 
Is this for the 3rd quarter, or July 1 - September 30? The S&P lost 7% of its value over those 3 months. If you're at 15%, I wonder what your allocations are.

3rd quarter, yes. I see -9.04% for the quarter, -14.82% YTD

Main allocations are:

NC Global Equity Fund (29.50%)
NC International Fund (14%)
NC Small/Mid Cap Growth Fund (11%)
NC Small/Mid Cap Value Fund (11%)
NC Large Cap Index Fund (11%)
NC Large Cap Growth Fund (6%)
NC Large Cap Value Fund (6%)
 
Anyone knows Stadion? How is their reputation, really? They are the fund manager for my company's 401k.

My company match up to 4% of my wage contribution. Up till now I was fine just upping it to 8%, figuring heck, it's not like I'm doing anything with my money. But they have been on the losing streak this past year. I'm thinking of just lowering it down 4% and just use the left over to buy VOO index off Tradeking.

It might be beneficial for you to secure your company match and then do an external Roth IRA, but if you're already doing that, I wouldn't direct excess money towards outside investing unless your fund options in your 401K are just abysmal. Before making that choice, reevaluate what your options are inside the plan and see if you just need to reallocate.
 
3rd quarter, yes. I see -9.04% for the quarter, -14.82% YTD

Main allocations are:

NC Global Equity Fund (29.50%)
NC International Fund (14%)
NC Small/Mid Cap Growth Fund (11%)
NC Small/Mid Cap Value Fund (11%)
NC Large Cap Index Fund (11%)
NC Large Cap Growth Fund (6%)
NC Large Cap Value Fund (6%)

Hmmm. My main comparison points never lost anywhere near 15% on the year (looking at the S&P 500, Russell 2000 for small caps, S&P Midcap 400, and a Vanguard International Equity fund). I wonder if some of those managed funds you have are both underperforming the market and eating you up with fees.

Generally, I think you could do yourself some good and reallocate a little bit, you are a bit underallocated on large caps and over allocated on small and mid, as far as domestic stocks go, and you also have a very large international allocation. Personally, I'd go for something like 60% domestic large cap, 20% domestic small and mid, 20% international, but that's me and you're you, though the 3 to 1 ratio of domestic large cap to small/mid is in line with most "total market" strategies.

Even if you like your mix, you would probably be well served to consolidate into the applicable index funds at each cap category and out of the managed growth and value funds. That will cut down your expenses while keeping your returns in line with the market.
 

massoluk

Banned
It might be beneficial for you to secure your company match and then do an external Roth IRA, but if you're already doing that, I wouldn't direct excess money towards outside investing unless your fund options in your 401K are just abysmal. Before making that choice, reevaluate what your options are inside the plan and see if you just need to reallocate.

Uh yeah, I got it wrong. Stadion was one of the funding option, Guardian is our provider. My colleague lose big with them this year, but I largely avoided it. I put them mostly in S&P Midcap index when I started. Still lost like $100 since I started.
 
Hmmm. My main comparison points never lost anywhere near 15% on the year (looking at the S&P 500, Russell 2000 for small caps, S&P Midcap 400, and a Vanguard International Equity fund). I wonder if some of those managed funds you have are both underperforming the market and eating you up with fees.

Generally, I think you could do yourself some good and reallocate a little bit, you are a bit underallocated on large caps and over allocated on small and mid, as far as domestic stocks go, and you also have a very large international allocation. Personally, I'd go for something like 60% domestic large cap, 20% domestic small and mid, 20% international, but that's me and you're you, though the 3 to 1 ratio of domestic large cap to small/mid is in line with most "total market" strategies.

Even if you like your mix, you would probably be well served to consolidate into the applicable index funds at each cap category and out of the managed growth and value funds. That will cut down your expenses while keeping your returns in line with the market.

Great insight, Ralph. Thanks a bunch! Just to note, I didn't allocate these myself. Prudential determined that I was an "aggressive" investor and allocated based on that. I'll manually play with things today.
 

Norml

Member
If anyone is interested,the play store got The Millionaire Real Estate Investor and Hold by Gary Keller for only $1.99.
 

SyNapSe

Member
I use Betterment as my main taxable account for now.

In general I am ok with it and have reaped enough TLH savings this year to way more than off-set the costs of having the account, so there's that. Obviously it depends on what your feelings on TLH are.

How do you avoid wash sales? I'd like to sign up and use one of these services but I feel like I'd have to completely stop investing in my 401k and ROTH.
 

Piecake

Member
How do I start this if I live in Germany?

I really have no idea what the situation is like in Germany. I would first check out online brokers, brokers, and then Banks. Through one of those institutions you should be able to buy mutual funds. I would then look at the funds offered and see if any of those funds are index funds. The best way to do this quickly is to look at the expense ratio. If still unclear, you might have to dig a bit deeper into the language or ask questions here.

While the principles of index investing can apply anywhere so long as index funds are actually offered, some of the specifics I mentioned in the thread are specifically American. For example, IRAs and 401ks are not going to exist in Germany, but there may be some sort of German equivalent. You will have to check that out since I have no idea what that would be. The funds I listed in the OP will also be different than the ones that you will see, but it will still be worthwhile to check those out to see what a good index fund actually looks like.
 

Wellington

BAAAALLLINNN'
How do you avoid wash sales? I'd like to sign up and use one of these services but I feel like I'd have to completely stop investing in my 401k and ROTH.

I don't do anything, Betterment handles it all.

I have a taxable account btw. The TLH is not applicable to retirement accounts.
 

j_rocca42

Member
401k loan for home remodel?

I know 401k loans are frowned upon. I would be making money by raising the value of my home. Just thinking out loud really.
 

tokkun

Member
I don't do anything, Betterment handles it all.

I have a taxable account btw. The TLH is not applicable to retirement accounts.

The problem is that transactions in those retirement accounts can still trigger wash sales that Betterment cannot coordinate. That's why they recommend transferring your IRA and previous employer 401k to them to avoid wash sales.

For your current 401k they don't provide any guarantee, but just advise customers to only purchase target retirement funds in their 401k. If your 401k includes stuff like total stock market, total bond market, or S&P 500, you are almost certainly going to have wash sales, whether you know about it or not.
 
I am so fucked retirement-wise. My parents are government workers with a pension so they didn't know to tell me about retirement savings and during my time in the military I didn't save one red cent for retirement. I'm currently 30 and have about 4k USD in my 401k and that's all the retirement savings I have.

Enough of the sob story and on to the question. What happens if you contribute to a Roth IRA and you end up making past the ineligibility amount for that year? Do they count your capital gains against your eligibility? I ask because I'm trying to decide which kind of IRA to open and my fiancee and I will be close to the limit after we get married and my yearly bonus is variable and could set us over.

Thanks
 

embalm

Member
I am so fucked retirement-wise. My parents are government workers with a pension so they didn't know to tell me about retirement savings and during my time in the military I didn't save one red cent for retirement. I'm currently 30 and have about 4k USD in my 401k and that's all the retirement savings I have.

Enough of the sob story and on to the question. What happens if you contribute to a Roth IRA and you end up making past the ineligibility amount for that year? Do they count your capital gains against your eligibility? I ask because I'm trying to decide which kind of IRA to open and my fiancee and I will be close to the limit after we get married and my yearly bonus is variable and could set us over.

Thanks
You aren't in that bad of a situation at all. At 30 you still have time to save plenty and be well ahead of most people. My parents never educated me on saving either, but that's what this thread is here for now.

Do either you or your wife have 401k options where you work? Contributing to those should reduce your taxable income helping you make sure that you are well under the income limits for your Roth IRA.

You asked about capital gains and yes I believe they do count towards your taxable income, but only if you sell it. You have to actually make that money before you pay taxes on it. You need to make sure that you are taking full advantage of your 401k which doesn't count towards your taxable income.
 
You aren't in that bad of a situation at all. At 30 you still have time to save plenty and be well ahead of most people. My parents never educated me on saving either, but that's what this thread is here for now.

Do either you or your wife have 401k options where you work? Contributing to those should reduce your taxable income helping you make sure that you are well under the income limits for your Roth IRA.

You asked about capital gains and yes I believe they do count towards your taxable income, but only if you sell it. You have to actually make that money before you pay taxes on it. You need to make sure that you are taking full advantage of your 401k which doesn't count towards your taxable income.

I have a 401k and she has a 403b (she starts in Jan) but we just got our jobs and will toy around with how much to put in them. Would be easy to max out if we didn't have crushing school loan debt. We are both going to contribute at least enough to max out our match though, that's for certain.
 

Wellington

BAAAALLLINNN'
The problem is that transactions in those retirement accounts can still trigger wash sales that Betterment cannot coordinate. That's why they recommend transferring your IRA and previous employer 401k to them to avoid wash sales.

For your current 401k they don't provide any guarantee, but just advise customers to only purchase target retirement funds in their 401k. If your 401k includes stuff like total stock market, total bond market, or S&P 500, you are almost certainly going to have wash sales, whether you know about it or not.

Whelp. My 401k is heavily invested in the S&P 500.

I was planning to leave Betterment in favor of VTSAX at the end of this year anyway.
 
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