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My employer doesn't match my 401K contributions, and none of the offered funds have expense ratios less than 1%. Should I just not bother & max out my IRA instead? What do I do after that?
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Aug 4, 2009 05:28
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80k posted:When you roll over to an IRA, you can invest in similar equity funds. Unless the transfer of assets gets botched up, it should be a smooth transition with minimal time out of the market. So just because you don't plan to stay at the company long, doesn't affect your intended investing timeframe. . Thanks for the advice. I actually don't have an IRA at the moment, but I'm going to be opening one through USAA in the next couple weeks and begin funneling my money into that. I get the max match from my employer at 3%, so I'll reallocate the other 7%, as well as some of my other savings, into my IRA. I don't make much of a salary (though my benefits are very good), but I might be able to max out a Roth. $4K is probably a more attainable goal. I have a lot of money in liquid bonds at the moment, and zero debt, so I can really focus on a retirement account for the foreseeable future. My main reasoning behind dumping my savings into a 401k was the convenience factor, but looking at my options it isn't the best move.
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Aug 4, 2009 05:47
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il serpente cosmico posted:Thanks for the advice. I actually don't have an IRA at the moment, but I'm going to be opening one through USAA in the next couple weeks and begin funneling my money into that. I get the max match from my employer at 3%, so I'll reallocate the other 7%, as well as some of my other savings, into my IRA. I don't make much of a salary (though my benefits are very good), but I might be able to max out a Roth. $4K is probably a more attainable goal. I have a lot of money in liquid bonds at the moment, and zero debt, so I can really focus on a retirement account for the foreseeable future. Opening up your IRA is dead simple. You can just put it in a money market fund while you research investment choices, and transfer from the MM fund to your longterm investment portfolio when you are ready (which you can do in one or two business days, as long as you are staying with the same investment company). Do a tiny bit of research first to see where you want your IRA held (USAA, Vanguard, Fidelity, T-Rowe), with attention on fees and availability of good investment choices. Then open an account and take more time before deciding on specifics. If your salary is low, you probably pay very little taxes, making a Roth a good choice. 401k's are notoriously bad. Unless you're one of the lucky few who have a great plan, then you should only use it because a.) you want to get the company match, and b.) you've maxed out your IRA and still want some tax-sheltered space to save for retirement. 80k fucked around with this message at 16:38 on Aug 4, 2009 |
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Aug 4, 2009 16:33
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I'm 27. I stopped investing in my 401k (which is matched) in Oct 08. I just started doing 5% again with a salary around 80k + 300/m in savings. In total it comes out to about 11% pre-tax to savings. I'm going to find (I have a feeling), after looking at my budget, that I have extra money to save. What should I do with it? I'm pretty behind on my retirement savings (around 8k all in 401k/Roth IRA). I'm thinking about buying stocks with it. My thinking is I have disposable income and the market is close to bottoming out but I am just learning about trading. I'd like to take a more active role in growing the extra money though. Any suggestions?
loud-bob fucked around with this message at 06:58 on Aug 6, 2009 |
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Aug 6, 2009 06:56
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loud-bob posted:I'm 27. I stopped investing in my 401k (which is matched) in Oct 08. I just started doing 5% again with a salary around 80k + 300/m in savings. In total it comes out to about 11% pre-tax to savings. I'm going to find (I have a feeling), after looking at my budget, that I have extra money to save. What should I do with it? I'm pretty behind on my retirement savings (around 8k all in 401k/Roth IRA). I'm thinking about buying stocks with it. My thinking is I have disposable income and the market is close to bottoming out but I am just learning about trading. I'd like to take a more active role in growing the extra money though. Any suggestions? This is the long-term thread, don't worry about trading. You should've been saving money for retirement, especially with the match, for a long time now--at that young age with that decent a salary, having only 8K for retirement tells me you've been on the wrong path. Look at it this way--you think the market is "bottoming out"...and yet the S&P 500 is about 350 points or over 50% higher than its low for the year; ie the market may have bottomed out long ago and you may have missed it. Timing the market is a fool's game and nobody's going to pat you on the back for stopping your contributions in october 08 (this was a horrible move by the way, you bought stocks expensive and then refused to buy them cheap). Start playing catch up, contribute enough to get the match in your 401k, then max out your IRA, and anything left over start contributing more to your 401k. Whether or not you want stock mutual funds or some other allocation is up to you based on your risk profile, the main thing you have to consider now is to start saving.
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Aug 6, 2009 14:16
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Edit: I am retarded.
baquerd fucked around with this message at 15:19 on Aug 6, 2009 |
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Aug 6, 2009 15:12
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quadreb posted:He said 80k. He's well ahead of the curve for most. loud-bob posted:I'm pretty behind on my retirement savings (around 8k all in 401k/Roth IRA). ?
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Aug 6, 2009 15:18
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Unormal posted:I wouldn't "rebalance" by changing my allocation at any given market point. Instead (and what 'rebalancing' "really" means) go ahead pick a less agressive allocation NOW, and stick with it for the long haul (like, say, 60/40, 50/50 or whatever), and invest that way. If the market goes back to it's previous highs you'll be 70/30 or 80/20, or whatever, but if you keep automatically rebalancing, you've accomplished your goal stated above, but without the emotional component of market timing. Magic of rebalancing. If I have a desired allocation I don't see why I should wait for to get there over a 5-8 year time period as opposed to moving toward it now. Assuming the decision is made as to the desired allocation, waiting 5-8 years would simply mean putting off 15-23% of my years to compound interest in a suboptimal allocation. At this point the only costs I would incur with getting to my desired allocation over the short term is about $2-3k worth of capital gains. Largely irrelevant, especially with most of this tax year having been spent in Iraq and therefore tax free. Still working on my desired allocation though. Right now I'm considering how many asset classes I want in the portfolio. Here's my current working model: In taxable accounts: 45% in US domestic equities index (Vanguard Total Stock Market Index) 20% in Int'l Index (FSTE All World Market Minus US) 5% in Precious Metals + Mining Tax Advantaged: 10% in REIT 20% in Bond Index (Total Bond Fund modeled after Barclay's Aggregate Bond Index) I'm still iffy on whether I want to add a small commodities stake in my portfolio and if a REIT in this point in time is a good idea. I'm sympathetic toward a buy + hold, index fund oriented investment strategy. However I really do think that our current real estate meltdown, and the coming commercial real estate implosion, will be events outside a standard deviation or two over historic US norms. I'd rather sit this one out and try to time the market, even given by overal buy+hold strategy. My other question is what to do with my access to the TSP G fund. http://www.tsp.gov/rates/fundsheet-gfund.pdf Basically it provides monthly returns based on medium to long term Treasury securities. In other words I get long term bond yields with short-term accessibility. The yields are slightly less than a total bond index, however the government also guarantees the principle. Also wondering if I should add some TIPS to further diversify and add a hedge against inflation. Thinking of swapping the 5% in precious metals + mining with the G fund or TIPS. Would change my asset allocation with respect to equities:fixed income, however I'd at least be holding assets that appreciate and should not be too correlated to the rest of my portfolio Happydayz fucked around with this message at 22:50 on Aug 6, 2009 |
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Aug 6, 2009 22:45
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Happydayz, Go ahead and use the G Fund for your bond allocation, if you want. If I had access to it, I would divide my bond allocation evenly between TIPS and G-Fund, and call it a day. No sense in taking on interest-rate and/or credit risk with nominal bonds when you have the G-Fund.
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Aug 6, 2009 22:57
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80k posted:Happydayz, I'm trying to work out this rationale in my head A broad bond index has historically outperformed the G fund. Granted, only by a percentage or so, but logically an aggregate bond index with exposure to commercial debt should offer higher yields than long-term treasury securities. I understand the point of minimizing the risk - is it worth trading a guaranteed principle and long term treasury rates for just one percent? Especially now with interest rates being so low. However this is a long term portfolio with a 35 year horizon, so over the long run an aggregate bond index should outperform the G fund. Again, the question is whether the increased return is worth the risk. However with only 20% of my portfolio in fixed income I already have a demonstrated appetite for risk taking. edit: I'm also having trouble understanding why the split between TIPS and G fund. Why is that kind of inflation hedge necessary? Since the G fund's return is calculated anew every month there should already be an inflation hedge in the G fund. Or am I on crack? Happydayz fucked around with this message at 23:10 on Aug 6, 2009 |
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Aug 6, 2009 23:08
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Happydayz posted:I'm trying to work out this rationale in my head It's not about minimizing risk, but about choosing your risks carefully. Consider your portfolio in its entirety. A person can only handle so much risk. Take on a little credit or interest rate risk with your bonds, and you may want to offset that risk by having a lower equity allocation. Use the G-fund, and you can raise your equity allocation. Your decision on which bond funds you choose has a direct relationship with what stock/bond ratio you would be comfortable with. My recommendation for the G-Fund is because it's an opportunity to have a very attractive risk-adjusted return. Returns similar to longer duration bonds with zero risk of principal. There is a small free lunch there, which exists simply because the fund is not available to the public. If you are comparing it to bonds of both longer duration AND lower credit quality, then sadly, you are asking too much.... that would be too big of a free lunch. Anytime a small free lunch arises, you should take it. This allows you to direct your risk taking endeavor in other ways (having a higher equity allocation, or tilting to small-caps or emerging markets equity). TIPS offers a diversification benefit, and allow you to lock in a real rate of return, so they are very different from the G-Fund. Rather than simply divide 50/50 TIPS/G, a better strategy is to buy TIPS individually, and only when they are at attractive rates (like 2.5% or greater). So you can skip TIPS for the time being. I've been a net seller of them over the past few months.
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Aug 6, 2009 23:31
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80k posted:TIPS offers a diversification benefit, and allow you to lock in a real rate of return, so they are very different from the G-Fund. Rather than simply divide 50/50 TIPS/G, a better strategy is to buy TIPS individually, and only when they are at attractive rates (like 2.5% or greater). So you can skip TIPS for the time being. I've been a net seller of them over the past few months. Does this advice change for someone that prefers to invest in a TIPS fund instead of individual TIPS? In what cases does it make more sense to buy individual TIPS rather than a fund that invests in TIPS, and in what cases is the opposite better?
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Aug 7, 2009 00:47
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ad infinitum posted:Does this advice change for someone that prefers to invest in a TIPS fund instead of individual TIPS? In what cases does it make more sense to buy individual TIPS rather than a fund that invests in TIPS, and in what cases is the opposite better? Sure, the Vanguard TIPS fund average duration is roughly a 10 yr maturity TIPS. So you can buy and sell the fund as you would a 10-yr TIPS. When does it make sense to buy individual TIPS? If you want to control maturity/duration. Most important reason is if you have a desire/need to lock in a real rate of return for a longer period of time. Perhaps you believe the treasury will discontinue issuing new TIPS, or that someday demand for TIPS will rise and permanently bring down yields. I've always been mildly wary of reinvestment risk of TIPS, so if I have an opportunity to lock in 20+ years of 2.8% real return with longer maturity TIPS, I'll load up on them. Can't do that with a fund. But really, you have to like TIPS as much as I do to even bother with individual TIPS, so most people would be just fine with the fund.
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Aug 7, 2009 01:16
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I've been reading through this thread and have garnished a pretty good idea of intelligent savings/retirement methods. I'm just a little unsure about what to do in my particular situation. My company matches 7% for my 401(k) and I can contribute up to 20% of pay on a pre-tax, post-tax or combination. I understand the typical advice is to contribute to company match, max out Roth-IRA and then max out 401(k). My salary is 88k so I am right below the limit before I can only contribute a fractional amount to a Roth-IRA. Is it still worthwhile for me to start a Roth-IRA and contribute for as long as possible before I am no longer allowed to? Or do I max out my 401(k) and then invest the money in other ways? I'm unclear on if its worth it to contribute to the Roth-IRA for a short period of time and have a limited amount of money in it or if its a better idea to just go ahead and put all that money elsewhere. I'm probably not understanding this 100% correct, but wouldn't it make sense for me to just contribute to my 401(k) on an after-tax basis (while taking advantage of company matching) and isn't that essentially the same thing as the Roth-IRA? Cbliss6 fucked around with this message at 04:45 on Aug 9, 2009 |
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Aug 9, 2009 04:30
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Is it ever worth borrowing money for the sake of not missing a year's contribution to a Roth IRA? I don't think I'm going to be able to come up with $5000 by April of 2010 to make my maximum contribution for 2009. It sounds like kind of a dumb idea, but on the other hand, it seems like the use-it-or-lose-it nature of a Roth IRA contribution for each year means that unless you max it out consistently you'll never have a chance to make up for those lost contributions. I haven't really looked around much yet, but if I can get a loan for $5000 at a decent rate, and pay it off within a couple years, the earnings of that extra $5000 in my Roth IRA over the next 25-30 years would more than make up for the interest that I'm paying on a loan.
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Aug 9, 2009 15:17
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Smilin Joe Fission posted:Is it ever worth borrowing money for the sake of not missing a year's contribution to a Roth IRA? I don't think I'm going to be able to come up with $5000 by April of 2010 to make my maximum contribution for 2009. The problem with that strategy is that if you cannot save $5k a year after taxes, then what are you going to do for future year's contributions? Next year you will be in the exact same boat you're in now and forced to either take out another loan or not max out your contributions. Of course, next year it will be even more difficult to save money since you'll be paying back this year's $5k loan. Even in the best case scenario you're essentially gambling that your returns beat out the interest rate on the loan, which is a dicey bet in this economy. Maxing out your IRA is nice, but you shouldn't harm your long term finances to do it.
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Aug 9, 2009 19:03
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Is there any good investment strategy for someone not in the US who wants to invest in the US market for a long term investment? I'm currently putting aside about $3000 a month in short term accounts in the local market in different kinds of investments, but would like to branch out and invest around $5000-$10000 a year in a US account. Since the money isn't being earned in the US, I'm not eligible for a Roth IRA, but would be interested in setting up an account that would be similar in terms of an investment strategy. Does anybody have any experience with this? I checked out some online investors, but it's mostly geared towards those who want to do large investments rather than someone looking for a retirement account.
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Aug 10, 2009 00:50
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Does Korea have any kind of tax-sheltered accounts? I know in Canada, you can hold US equities in an RRSP, so maybe Korea has something similar. I have no idea what there are in the way of brokerages in Korea, but assuming you can find one, one of the Vanguard ETFs would be an excellent way to invest in the american market.
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Aug 10, 2009 07:01
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Check your tax treaty between your country and the US. Generally you cannot invest in US based mutual funds, but you can invest in direct securities through a US-based brokerage (where you wire money to the US), which luckily for you, includes ETF's (which are essentially index funds). You probably do not need to pay any capital gains taxes, but you will get a flat percentage haircut on all of your dividends. This is really not bad. Between federal and state taxes, all US citizens pay about the same as a non-resident in taxes on dividends, plus we need to pay capital gains taxes on sales. Look into the discount brokerages (Scottrade, Firstrade, Wellstrade, etc) and inquire about setting up an account as a foreigner. You will need to file some kind of W-8 form, and keep it updated with the brokerage.
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Aug 10, 2009 16:14
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For someone (age 27) with approx. 10k invested (through Vanguard) should I avoid the emerging markets fund? Right now I just have all of my money in the Target Retirement but was thinking of splitting it up between a few funds. I had heard the emerging markets fund was pretty good, if not a risky, but this was about a year ago. With things the way they are should I avoid this fund? Help please.
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Aug 11, 2009 02:16
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xgalaxy posted:For someone (age 27) with approx. 10k invested (through Vanguard) should I avoid the emerging markets fund? Right now I just have all of my money in the Target Retirement but was thinking of splitting it up between a few funds. I had heard the emerging markets fund was pretty good, if not a risky, but this was about a year ago. With things the way they are should I avoid this fund? Minimum investment in most Vanguard funds is $3,000, so with $10,000 available it will be hard to split your money without over exposing yourself. Putting 30% of your money into EM is very risky. If you're invested in the 2050 retirement then you already have 3.9% invested in them (https://institutional.vanguard.com/VGApp/iip/site/institutional/investments/aggregateviews?cl=00000103).
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Aug 11, 2009 03:06
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xgalaxy posted:For someone (age 27) with approx. 10k invested (through Vanguard) should I avoid the emerging markets fund? Right now I just have all of my money in the Target Retirement but was thinking of splitting it up between a few funds. I had heard the emerging markets fund was pretty good, if not a risky, but this was about a year ago. With things the way they are should I avoid this fund? I would suggest remaining in a target retirement fund and doing background reading (I'd start with four pillars from the OP). Ultimately, the most important diversifier is your bond/equity split, not how much of your equities are emerging markets. Don't trouble yourself with other decisions until you understand your bond/equity exposure. It is, by far, the most important risk-level decision you will make.
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Aug 11, 2009 03:17
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Unormal posted:I would suggest remaining in a target retirement fund and doing background reading (I'd start with four pillars from the OP). Bonds? Those sound like something for old people. My take is that if you're over 10 years from retirement, there's no call for them. I like venture capital partnerships myself.
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Aug 11, 2009 05:28
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quadreb posted:Bonds? Those sound like something for old people. My take is that if you're over 10 years from retirement, there's no call for them. I like venture capital partnerships myself. Hey maybe we can keep fakeposts out of the investing megathread. That would be nice.
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Aug 11, 2009 07:12
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SecretFire posted:Hey maybe we can keep fakeposts out of the investing megathread. It's not a fakepost, my risk tolerance is just super high. Unless you can source me some (well protected) bonds that hit 10% (not inflation adjusted) returns?
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Aug 11, 2009 07:24
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As recent events show, there are very few well protected stocks that produce that kind of return either.
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Aug 11, 2009 08:44
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Hobologist posted:As recent events show, there are very few well protected stocks that produce that kind of return either. That's why I go for much higher returns on very risky ventures. The bonus of getting to hear a full business proposal and have the business plan laid out for you when you're a member of a group serving as the principal investor in a project beats the hell out of mutual funds if you can pick the right projects. Like recently, I helped fund exploratory oil drilling in Texas on a 2 year contract and make 120% returns on my investment. However, I've also funded similar projects that lost everything.
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Aug 11, 2009 08:53
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quadreb posted:That's why I go for much higher returns on very risky ventures. The bonus of getting to hear a full business proposal and have the business plan laid out for you when you're a member of a group serving as the principal investor in a project beats the hell out of mutual funds if you can pick the right projects. Like recently, I helped fund exploratory oil drilling in Texas on a 2 year contract and make 120% returns on my investment. However, I've also funded similar projects that lost everything. This is the long-term investing thread, not the venture capital thread. And you're quoting someone who said he has $10,000.
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Aug 11, 2009 14:10
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Don Wrigley posted:This is the long-term investing thread, not the venture capital thread. And you're quoting someone who said he has $10,000. I guess it all depends on what you want to call long term. I've seen 5-10 year deals for new building developments, for example.
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Aug 11, 2009 14:39
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quadreb posted:Bonds? Those sound like something for old people. My take is that if you're over 10 years from retirement, there's no call for them. I like venture capital partnerships myself. That's fine, nothing in your terrible post invalidated anything I said. If he has the tolerance for 50, 100, 150, 200% equities, that's fine; but he still needs to come to that conclusion before doing anything, including venture capital partnerships.
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Aug 11, 2009 22:19
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quadreb posted:That's why I go for much higher returns on very risky ventures. The bonus of getting to hear a full business proposal and have the business plan laid out for you when you're a member of a group serving as the principal investor in a project beats the hell out of mutual funds if you can pick the right projects. Like recently, I helped fund exploratory oil drilling in Texas on a 2 year contract and make 120% returns on my investment. However, I've also funded similar projects that lost everything. Losing everything is hardly a fitting foundation for long term investment. Enough of those and you never will be within 10 years of retirement.
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Aug 11, 2009 22:52
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So I just opened my Roth IRA, and I have a quick question--I understand that I can contribute for 2009 until April 2010. Can I contribute for 2010 earlier than that, or is April considered the fiscal year for IRAs? Also, I'm assuming Roth IRA contributions won't affect my tax return filing?
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Aug 12, 2009 22:36
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il serpente cosmico posted:So I just opened my Roth IRA, and I have a quick question--I understand that I can contribute for 2009 until April 2010. Can I contribute for 2010 earlier than that, or is April considered the fiscal year for IRAs? You can start contributing funds to a Roth IRA starting January 1 of each calendar year. Because of this, there is an "overlap" period from January 1-April 15 where you can contribute to both the previous year and the current year (assuming you haven't reached the contribution limit for either year). quote:Also, I'm assuming Roth IRA contributions won't affect my tax return filing? You are correct; Roth IRA contributions are post-tax.
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Aug 13, 2009 00:12
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how do people feel about REIT's in a long term portfolio? Right now I'm thinking of having my asset allocation be 70% equities. I'm split between two choices for the remaining 30%. Having the last 30% be entirely fixed income (total bond index + TSP G fund), or 20% fixed income and 10% REITS. My problem with REITS is that I feel that they are still overvalued right now. There was a shakeout with residential real estate, but I suspect that commercial is still inflated. Also think that we have yet to reach bottom. So even though I'd like a 10% REITS for my portfolio eventually, I'm still hesitant to buy into REITS at this point. I'm especially hesitant because of the recent run-up in the price of REITS. If they were still at their low point I'd make the purchase, but I have a hard time shaking the belief that they are overvalued right now
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Aug 13, 2009 21:52
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Happydayz posted:how do people feel about REIT's in a long term portfolio? One thing to note about REITs is that they are incredibly tax-inefficent, similar to high-yield bonds. I wouldn't consider investing in them unless I had a sizable amount to allocate to them in a tax-sheltered account (IRA/401k). Another thing to consider is that you'll probably have a *substantial* exposure to real-estate at some point in your life without REITs, when you own a house/condo/etc. Additionally, just owning a broad market portfolio gives you exposure to real-estate, and real-estate owning companies. That said, there are many people that include REITs as a slice of their asset allocation in tax-sheltered accounts.
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Aug 13, 2009 21:56
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If you've decided 30% bonds meets your risk tolerance, then 20% bonds/10% REITs is too risky. Stay with 30% bonds and if you want REITs, take them out of your equity allocation.
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Aug 13, 2009 22:02
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Unormal posted:One thing to note about REITs is that they are incredibly tax-inefficent, similar to high-yield bonds. I wouldn't consider investing in them unless I had a sizable amount to allocate to them in a tax-sheltered account (IRA/401k). I could stash my desired 10% REIT allocation into a tax sheltered account and be fine. I'll have a large amount of my allocation in a taxable account that I'll keep in a tax efficient stock index. So the tax issues aren't a worry. Definitely tracking the exposure to real estate that comes with home ownership. But that doesn't capture commercial real estate or even residential real estate in other markets. What I'm really attracted to with REITS is how uncorrelated they've historically been with the stock market. For whatever reason I feel like I should try get some more diversification above and beyond just equities and fixed income - even if I already have built-in diversification there caused by keeping the money in total stock market indexes and an aggregate bond index.
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Aug 13, 2009 23:16
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Juts a quick note here that probably doesn't affect too many people. I had some interest in an oil ETF, and started doing some research. Unfortunately, the oil-price-tracking ETFs like USO seem to be quite lovely investment vehicles. Because they're based off of futures contract (as opposed to buying old itself, which isn't really feasible) they're vulnerable to a variety of problems, chief among them being "contango". Basically, since a fund like USO has to sell the upcoming month's contract before it expires and buy the contract for the month after, the fund can experience a loss if the next contract is trading at a higher price. This can go the other way (where it's called "backwardation"), but it still fucks up the tracking of the fund. Also, since the futures are inherently leveraged, all of the extra cash is put into treasuries, further decoupling the fund from the price of oil. And this still ignores the fact that USO is big enough that its selling of contracts moves the market a decent ways. Is there a better way to make a long term bet on the price of oil other than ETFs or individual stocks of oil companies?
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Aug 14, 2009 03:37
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Happydayz posted:I could stash my desired 10% REIT allocation into a tax sheltered account and be fine. I'll have a large amount of my allocation in a taxable account that I'll keep in a tax efficient stock index. So the tax issues aren't a worry. If you're really set on REIT exposure, I agree with 80k; take a chunk out of your equity allocation and buy a low-cost REIT fund in a tax-advantaged account.
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Aug 14, 2009 18:53
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Some quick questions now that I have my Roth IRA going. My mutual funds pay dividends. My bond fund pays monthly, and my target retirement fund pays annually. These dividends will be reinvested. Will I need to claim this dividends on my tax return as capital gains? Secondly, I hear dollar cost averaging is your friend when contributing to mutual funds. I'm a little fuzzy on the math--it seems to me it's good for mitigating risk, but I don't see any other benefits.
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Aug 18, 2009 18:46
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