anonymous_abc
Member
You might want to move to Stock Age.
We don't look kindly upon you
timing the market
jk 
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How to Invest for Retirement
- Thread starter Piecake
- Start date
You might want to move to Stock Age.
We don't look kindly upon you
bro, wat?
anonymous_abc
Member
So with all the 2015 numbers in I thought it might be interesting to compare where we stand.
If everything stays unchanged my aimed for early retirement date / financial independence day is
March 2024
From then on roughly going by the 4% rule we could live of our investments on our reasonable expenses level indefinitely.
I am super stoked about that.
How are we achieving that? By living off just 30% of our net income.
And some more colourful pictures to boot.
If everything stays unchanged my aimed for early retirement date / financial independence day is
March 2024
From then on roughly going by the 4% rule we could live of our investments on our reasonable expenses level indefinitely.
I am super stoked about that.
How are we achieving that? By living off just 30% of our net income.
And some more colourful pictures to boot.
I had a high-income strategy when I first started investing for retirement. I switched to index funds a few years ago when I compared what that strategy had translated to: I traded growth for income, and it wasn't an even trade by a long shot. I'd have done far better with a market index. It cost me pretty dearly.
You should probably use the stock trading thread if your strategy is to time segments and individual stocks, as that kind of market timing is not really sound for retirement investing.
I'd never had all my portfolios in one place before, and created a spreadsheet on Google Sheets to track all of my various holdings with my IRAs and 401k. Somehow I never realized that I have nearly 100% of my total portfolio in domestic stocks and realized this needs to change.
I'm not so much concerned with shifting anything to bonds since I'm only 31 and have plenty of years before I'm really concerned with reducing my risk. Unfortunately my 401k provider's options really suck (Principal). There's only 2 index funds available, Small Cap S&P Index and a Large Cap S&P Index; both with expense ratios of 0.72% of which I already have the majority of my 401k allocated towards. There's a few international options, but they're pretty shit with expense ratios ranging from 1.5-2%. Everything else is all managed with really poor expenses ratios.
I hate not being diversified, but given my current situation I feel as if I don't have a ton of options. I've been contributing close to the max for my IRAs over the past 3 years so anything I change there won't make a significant dent in my ratios. I'm pretty happy with my Vanguard portfolio as is, but didn't know if it would be worth trying to make a shift in my IRA more towards International for now or in the future.
I'm not so much concerned with shifting anything to bonds since I'm only 31 and have plenty of years before I'm really concerned with reducing my risk. Unfortunately my 401k provider's options really suck (Principal). There's only 2 index funds available, Small Cap S&P Index and a Large Cap S&P Index; both with expense ratios of 0.72% of which I already have the majority of my 401k allocated towards. There's a few international options, but they're pretty shit with expense ratios ranging from 1.5-2%. Everything else is all managed with really poor expenses ratios.
I hate not being diversified, but given my current situation I feel as if I don't have a ton of options. I've been contributing close to the max for my IRAs over the past 3 years so anything I change there won't make a significant dent in my ratios. I'm pretty happy with my Vanguard portfolio as is, but didn't know if it would be worth trying to make a shift in my IRA more towards International for now or in the future.
Randolph Freelander
Member
With index funds with expense ratios at 0.72%, I'd really hate to see what the managed funds looked like. As it is, those index funds should be some sort of crime.
My not-completely-non-serious advice would be to quit your job and roll those funds into an IRA. But obviously, beyond securing your employer's match, your IRA should be your top priority and, yes, go ahead and achieve your diversification there since it will come to you at a lower cost.
But your employer is really doing you a disservice with that plan. I'm guessing it's a small business? But surely better options should be available.
I completely agree. Most of their managed funds are well over 1%. I've complained about this before.
Yes, we're a medium sized company with less than 200 employees. I already asked if I could do an in-service rollover but that was a dead end. I just wasn't sure if I had any other options.
<rant>
It's always been frustrating to me that the IRA contribution limits feel arbitrarily low and that so much is dependent upon whatever your employer decides to use for 401k management. If your employer picks a bad plan or just decides to have other random qualifications to contribute, you're just screwed.
</rant>
Energy stocks like Exxon have a bright future and pay a nice dividend. Same with SO. They are being pushed down by the oil glut but that is temporary. Everyone knows oil will eventually rebound.
I didn't mean in and out. I meant now is a great time to go long on energy. It's a great time to go all in on companies like Exxon, Phillips 66 etc.
I have market indexes in my Ira. Sorry I guess I'll move this to stock age. Wasn't aware it even existed.
That's nice, but you said they're a great way to mitigate risk. Energy stocks are high volatility, now more than ever.
killertofu
Member
Just finished reading "Get a Financial Life". Blazed through it pretty quickly, it was a very light but informative read.
I want to start investing a little bit of my money. I just turned 25 and have around 10,000 just sitting in my bank account. I have a pretty good job and the book makes me want to invest BUT the only thing that worries me is the upcoming year. As good as this job that I have is now, I want to eventually move to Los Angeles, preferably in 2017. I'm in production so that's what I'd like to do. The only thing is, editing/production salaried jobs are so hard to come by that all I want to do is have as much money saved up as possible at all times.
Suggestions?
I want to start investing a little bit of my money. I just turned 25 and have around 10,000 just sitting in my bank account. I have a pretty good job and the book makes me want to invest BUT the only thing that worries me is the upcoming year. As good as this job that I have is now, I want to eventually move to Los Angeles, preferably in 2017. I'm in production so that's what I'd like to do. The only thing is, editing/production salaried jobs are so hard to come by that all I want to do is have as much money saved up as possible at all times.
Suggestions?
Maybe not. For all we know, alternative energy sources will soon become mainstream, permanently depressing the price of oil.
You can withdraw contributions to a Roth IRA for free. Just withdraw if money starts to get tight.
Not for a long approach. Day to day they are volatile right now. A dividend paying energy stock like Exxon is not a bad choice. Another great long stock right now is KO (Coke). But hey that's just me.
Exxon is a refiner. Alternative energy is also something Exxon is invested in and won't replace the global reliance of refineries. I'm a strong believer in dividend paying stocks that have strong PE ratios as a way to mitigate risk.
Want a risky energy stock? BP. Now that's risk. I also actively invest in high cash flow small cap stocks for growth. That's where I choose my risk.
Randolph Freelander
Member
According to the most recent data from the S&P, 418 of the 504 stocks comprising the S&P 500 Index pay dividends. The average yield of all payers is 2.69%, and the average yield across the index is 2.28%. Additional data about dividend payers and yields is also included for their mid-cap and small cap indices.
You want dividend paying stocks? Get in the index funds with the rest of us.
anonymous_abc
Member
Anyone?
Perfect time for that 2016 investment.
So I read the most depressing thread ever yesterday about people too poor to retire and too young to die. Hearing stories about people who's retirement plan was suicide so not to burden families with debt was heart breaking
http://www.metafilter.com/156772/Too-poor-to-retire-too-young-to-die
Don't let that happen to you gaf.
http://www.metafilter.com/156772/Too-poor-to-retire-too-young-to-die
Don't let that happen to you gaf.
There is no generally accepted income point where a Roth account is more attractive than traditional, or vice versa. This is assuming you are eligible to contribute to both accounts. If you make a lot of money, your only choice for IRAs will be to do backdoor Roth conversion.
There are a few reasons why: First, the present-taxes vs future taxes argument is dependent on future tax rates, which is something it is impossible to be certain about. Here's a graph of US federal income tax marginal rates:
Today's tax rates are much lower than they have been throughout most of the century. Will they continue to decline? Stay stable? Go back to 1975 levels? No one knows, and the longer you are out from retirement, the harder it is to predict. If socialism does catch on in the US and the marginal rate on $20K goes back to > 30%, then you are almost certainly better off putting your money in a Roth account. But a socialist government might just as easily say that they have decided they are going to tax distributions from Roth accounts after all for people above a certain wealth level. In that case you would almost certainly be better off putting your money in a Traditional account. It gets even more complicated when you consider state taxes, which will vary not only based on time, but also based on the possibility you may move. And some states do not recognize retirement accounts the same way the federal government does.
The second issue is that it depends on what sort of retirement you want. Do you plan on retiring before age 60? Or do you plan on making any large withdrawals in retirement - maybe to buy a vacation home or help pay for your grandkids' college, etc.? In those cases you will benefit from having a Roth account, since you won't have to pay penalties for early withdrawals and you can take out large sums without worrying about it putting you in a high marginal rate. I made an argument a while back in this thread that if you are someone who is maxing out their tax advantaged retirement savings, then it is better to put them in Roth regardless of your current marginal rate because you will likely have so much saved at the end that the additional flexibility of withdrawing whenever you want and however much you want without penalty will become more important to your happiness than a slight difference in your marginal tax rate.
Lastly, do you care about what happens to your account after you die? You can pass it on in your will, and that opens up a whole raft of new tax considerations.
One more thing of note, since you mentioned doing a backdoor Roth IRA - if you think you will ever do this again, you may not want to put money in a Traditional IRA. The way the backdoor conversions work, you will be forced to withdraw part of this money and pay tax on it when doing the conversion. This does not apply to Traditional 401k contributions.
Randolph Freelander
Member
Which one of you clumsy fellows fat fingered the sell-off button?
Sorry about that.
Randolph Freelander
Member
It's cool, just do that next Friday, not this one. I get paid every other week.
Yep, me too. It always seems the market wants to go up on my payday and then tank. I'm all about consistency in investing but damn, if it's going down, let me get the most of it.
TangoAlphaLima
Member
This is a good point, and reminds me when I heard Dave Ramsey give this advice once. A caller was asking whether it was more beneficial to stick with the traditional IRA instead of the Roth due to his tax rate, and Dave started to ask him questions about his income level and such, but then stopped himself and said, "Wait... I do the back door Roth conversion for my own personal finances, so why would I tell you any different?"
A Roth conversion might hurt a little bit now, but man are the benefits of the Roth come retirement time pretty darn nice. People who wait and collect 100% (or greater) of social security, and maybe even have a pension as well, might have ample income to do what they want during retirement. They don't have to take a dime out of that Roth unless they want to. It can sit there forever (well, until death) gaining in value with not one tiny bit of it taxable upon withdrawal, and when it transfers to an heir, it can withdrawn over that person's lifetime. It's amazing.
Well, we've had a lot of discussion about our relative tolerance for short term volatility in the topic recently. I figured why not do a stress test of sorts, see who really walks the walk on that whole long term, buy and hold thing. *pulls random levers*
kutthoat5150
Member
Thanks I didn't really explain it to well as I'm new to this, but I guess another way of phrasing it would be do my investment funds in my roth IRA have the same $5500 annual limits which I can put money in?
Also, when you say if I put $11k in my roth and get 2 $3k funds in each, would that leave me with $5k left to invest with as I've already hit my max limits for 2015 and 2016?
chaosblade
Unconfirmed Member
Yes, the $5500 you put in the Roth is the same $5500 you invest, so the have the same limit. Once you put the money in the Roth, it doesn't matter what it's doing, it counts toward the contribution limit. So it can be invested, or sitting there just as cash, or whatever, and it's still part of your Roth.
And for the second part, yes. If you didn't contribute for 2015, you can still do that until Tax Day (April 18th). So in theory, if you are just starting out now, you could contribute up to $11k by putting in $5500 for 2015 and another $5500 for 2016 and hitting the limit for both years, and invest all of that.
I agree! But I have bonds so I can sell them in a downturn and buy more equity!
kutthoat5150
Member
That answers my question, appreciate the help!I
I was thinking there was a way to invest more per year than the roth IRA allows. How would the admiral shares work from Vanguard as those cost $10k to start?
No kidding. I've been waiting to put my roth ira money in the market. I finally did and boom! The feeling is this week might be ugly too.
chaosblade
Unconfirmed Member
I'm not really familiar with the workarounds. There is the backdoor Roth but that's just for people who make too much to contribute to one, not to bypass limits.
As for Admiral shares, you don't need to worry about when you start out. Once you reach the minimum (most are 10k, a handful are higher I think) you can convert the Investor shares to Admiral shares. It may automatically do it if you are over the minimum for a while and don't convert them manually, but I'm not completely sure (did mine manually last month).
Once you have 10k in your IRA, you can buy into the admiral fund. I think you're confusing contribution limits and applying that to investment limits (which don't exist).
Once the money is in the IRA, you can do whatever you want with it as often as you want.
Of course, this means that you wouldn't be able to get admiral shares in the first year you start your IRA (unless you rolled it over from something), but that doesn't really matter and is moot after one more year.
You can because of the 15 month window for IRA.
I made a small deposit at the end of Jan towards my Roth IRA but I'm holding most of it in my bank right now. I understand that in there grand scheme of 30 years right now doesn't really matter but I want to see how the market shakes out before making a full deposit. After seeing how linked in got crushed in one day I feel the next market crash will happen fast. Too many robo advisors nowadays and I think they are the reason for the massive market volatility.
Ah, good call
Randolph Freelander
Member
What exactly would be your sign that it was alright to invest?
AppleBlade
Member
Total world includes the US so you'd have crossover. Go with total International. While you're at it you might want to consider Total Stock market for your domestic allocation. About 80% of it is S&P 500 but it includes a little bit of medium and small companies for better diversification.
chaosblade
Unconfirmed Member
Not necessarily advocating any of these, but some International funds:
Emerging Markets
Developed Markets
European Index
Pacific Index
FTSE World excl. US + Small Cap
Personally, I'd just go with Total International. Wouldn't bother with Total World because you could do Total International + Total Market (US) and get effectively the same thing with a much lower expense ratio.
Randolph Freelander
Member
My skittishness over emerging markets would have me go towards Vanguard's Developed Markets Index over the Total International Stock Index, as it has less exposure to the highly volatile emerging market sector (< 0.5% vs. 13.5%). But that's me.
Speaking of me, today is Roth Top-Off Day. My purchase doesn't go through until the close of market, so today's continued slump isn't my fault. The crater that happens the rest of the week, however, is all me.
AppleBlade
Member
Be Fearful When Others Are Greedy and Greedy When Others Are Fearful
A lot of people are skittish on Emerging markets and generally bullish on US equities. That probably means that Emerging markets are a good deal right now and US equities are probably overvalued.
However, what do I know? What does anyone know? That's actually my point. No single individual can consistently say whether individual investments, sectors, or asset classes are under priced or over priced. They are almost always priced fairly given all of the public information. (Sure, Emerging Markets countries are having issues but that is already priced in, Sure Oil is cheap but there are reasons why it's cheap, etc.). The key is to select a sensible asset allocation and resist making changes based on how you think that investment will perform in the near future.
chaosblade
Unconfirmed Member
I'm fine with emerging markets in the total international fund because it's only <15%. That's enough to add some diversity while also not being a really substantial amount of the overall fund. But that's just me. If it was like 40% or something I'd probably prefer to do my own mix of Developed and Emerging.
Question about backdoor Roth IRAs: Lets say I already have a traditional IRA with TD Ameritrade, and then I call up Vanguard to open a backdoor Roth IRA (who will open up a new Traditional IRA, and then convert it to a Roth IRA).
Will there be any tax implications, either on the new Traditional->Roth IRA, or on the old Traditional IRA?
Will there be any tax implications, either on the new Traditional->Roth IRA, or on the old Traditional IRA?
Yes, there will be. The rules unfortunately do not allow you to pick and choose which money from the Traditional IRA gets rolled over. The way the rules work, you must roll over the money in both the old and new accounts in proportional amounts.
For the sake of easy math, let's say that your old account has $22K in it and you add $5.5K to the new account. There is now a 4:1 ratio of old money to new money. Thus, for every $1 you roll over to Roth, $0.80 will come from the old money and $0.20 will come from the new money. So if you wanted to roll over $5.5K to Roth, $4.4K would come from the old money and $1.1K from the new money. It follows that to roll over all of the new money, you would need to roll over all of the old as well.
Assuming that you originally deducted that old money from your income, you will have to pay income tax at the marginal rate on all of the old money you roll over plus the 10% early withdrawal penalty (and you will have to do this for any earnings, regardless of whether the original contributions were deducted).
Basically you need to look at the size of your traditional IRA and think about how much you are planning to use the backdoor Roth in the future to decide if it is worth it.
Well, shit. I happen to have $57k in the old account, and I had called Vanguard a month ago who did the whole Backdoor IRA. I didn't tell them at the time about the old account, as I didn't think it mattered. And they converted the entirety of the new IRA, leaving my old one untouched (which hopefully wasn't... bad of them to do).
I guess I'll have to figure out how this works into my tax bill this year. . .