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Open a Roth IRA at Vanguard, contribute $5000 and invest it in a target retirement fund, keep $5000 in your savings account for emergencies, put in another $5000 (or whatever the max will be if it changes) in 2011 whenever you get enough $$ to still keep ~6mo expenses in your savings account or contribute everything you don't use every month to your Roth IRA (after you top off your 6mo expenses savings account if you had to touch it).
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Oct 28, 2010 00:26
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You can still contribute to a 401k even if your company doesn't match. Don't be stupid (like I was at your age) and assume that no company match means there's no benefit. There's still a massive benefit to contributing so early in your career.
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Oct 28, 2010 01:26
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I understand this, but does it make more sense to open up a personal IRA instead because there's no matching?
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Oct 28, 2010 04:48
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Lyon posted:I understand this, but does it make more sense to open up a personal IRA instead because there's no matching? The general wisdom is to contribute to retirement accounts in the following order: 1. 401k to match 2. Roth IRA to limit ($5,000) 3. 401k to limit ($16,500) 4. Taxable investments There are income limits of roughly $100,000 on Roth IRA contributions and your own situation can vary blah blah blah.
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Oct 28, 2010 13:57
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var1ety posted:The general wisdom is to contribute to retirement accounts in the following order: Even the 401k to limit one might not be worth it if your company has a truly horrible 401k plan like some do. Got to look at expense ratios.
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Oct 28, 2010 14:31
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Chin Strap posted:Even the 401k to limit one might not be worth it if your company has a truly horrible 401k plan like some do. Got to look at expense ratios. Speaking of which, came across this yesterday, neat tool at least for the rating thing. http://www.brightscope.com/ How do your plans compare?
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Oct 28, 2010 15:35
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Not on BrightScope, but I think it would score well. My employer contributes 8% of my salary if I contribute just 2%. Unfortunately I'll only be 20% vested by the time I leave so it's effectively 1.6% employer contribution. Question: when I leave, do I get to keep the gains from the unvested portion of the employer's contribution, or do they calculate the returns on that and subtract them?
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Oct 28, 2010 16:13
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Chin Strap posted:Even the 401k to limit one might not be worth it if your company has a truly horrible 401k plan like some do. Got to look at expense ratios.
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Oct 28, 2010 17:48
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I'm not sure how this happened, but apparently my previous employer had some sort of a retirement plan set up for me that I don't recall hearing anything about. He'd since decided to close out the plan and I guess I have access to it now, but I'm really not sure how I handle it. My old office manager called me last week to let me know about the $1000 I had in this account and said that she would send me over paperwork on it. I just received the paperwork for it, but I'm not sure what I'm supposed to do with it. The account is with The Hartford in their Target Retirement Fund. The paperwork has a group number, a confirmation code and some other basic information. How easy is it to move this money to another account of some kind? I'm planning on starting a Roth IRA soon with Vanguard (before April at least) and I was hoping I could just move this money into that along with another $4k to max out my allowable contribution. Is this something that's easy to do?
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Oct 28, 2010 20:20
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Yeah you can bring it over to Vanguard, and it won't count against your contribution if it's already in a 401k or IRA so you can still contribute $5,000 on top. If it's in a 401k you'll need to roll it over, but Vanguard can help you out with that.
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Oct 28, 2010 21:16
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waar posted:Yeah you can bring it over to Vanguard, and it won't count against your contribution if it's already in a 401k or IRA so you can still contribute $5,000 on top. If it's in a 401k you'll need to roll it over, but Vanguard can help you out with that. Awesome, that's even better then. Thanks. I figured I'd ask here before I called them, since I don't have the Vanguard account set up yet. I'll give them a call when I get that money in order to open the account.
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Oct 28, 2010 21:20
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unprofessional posted:This is something I've wondered about. My employer does no match for the 403b, and my choices are offered by Mutual of America, with no listing of expense ratios that I can find. They also offer a few vanguard funds through the MoA 403b, and I don't really understand if MoA is going to be taking out money (along with vanguard) if I put it into one of the vanguard funds, or if I have to choose one of the MoA funds to keep my expenses as low as possible. The pamphlet I was given certainly whores the MoA funds, and makes it seem like the worst possible choice you could make is putting money into funds from other companies, but they still offer those funds. It's really confusing. since you have no match, keep your life simple and opt for your own IRA at Vanguard. If/when you decide you can save more than the annual IRA limit, then dig a bit deeper on the 403b plan and fees. Someone at HR must be able to help you out when you get to that point.
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Oct 28, 2010 21:23
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rockcity posted:Awesome, that's even better then. Thanks. I figured I'd ask here before I called them, since I don't have the Vanguard account set up yet. I'll give them a call when I get that money in order to open the account. couple things to watch for. The retirement plan was likely a tax deferred one so you'll likely roll it over to a rollover/traditional IRA at Vanguard, not a Roth. Watch for minimum investment requirements. Vanguard STAR fund has $1K minimum. Most others are $3K. If you have $999, you may have to work something out (i.e. start up a Traditional IRA first with your own money, then roll into it... and if you want you can convert to Roth later).
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Oct 28, 2010 21:36
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quote:since you have no match, keep your life simple and opt for your own IRA at Vanguard. If/when you decide you can save more than the annual IRA limit, then dig a bit deeper on the 403b plan and fees. Someone at HR must be able to help you out when you get to that point. Thanks; that's sort of what I've been figuring on doing. Just gonna try to get the roth filled up this year, do the same next year, and then really take a look at the 403b. I stopped into the HR lady today, as I was walking by, and asked her about it, and she had no idea, and just suggested that I call the broker, or whoever, to figure that stuff out.
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Oct 28, 2010 21:40
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Yeah you would need to convert it to a Roth. open traditional IRA at Vanguard -> roll over the 401k -> convert trad to Roth (you should be able to do this before investing in a fund) -> contribute to the new Roth -> close traditional. edit: unprofessional posted:do the same next year, and then really take a look at the 403b. If you are interested in converting the $1k to a Roth you should do it now because anybody can do it this year, the rules may change next year waar fucked around with this message at 21:46 on Oct 28, 2010 |
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Oct 28, 2010 21:42
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waar posted:Yeah you would need to convert it to a Roth. open traditional IRA at Vanguard -> roll over the 401k -> convert trad to Roth (you should be able to do this before investing in a fund) -> contribute to the new Roth -> close traditional. How? There are no "non"-Funds at Vanguard. You could park it in a money market fund (which is still a fund you have to choose) but there is a $3K minimum on those just like any other fund. He's got $1K so the STAR fund may be his only choice unless he opens a Traditonal IRA first with his own money.
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Oct 28, 2010 21:54
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I'm not entirely sure about Vanguard specifically but most custodians you can just send cash to and have it set in an uninvested account before using it to invest in a fund. He can also just contribute $5k to the traditional, roll over the $1k, then convert the $6k.
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Oct 28, 2010 22:00
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AreWeDrunkYet posted:Speaking of which, came across this yesterday, neat tool at least for the rating thing. http://www.brightscope.com/401k-rating/367778/Google-Inc/372789/Google-Inc-401K-Savings-Plan/ I <3 my Vanguard funds.
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Oct 28, 2010 23:33
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Is giving up dollar cost averaging a big enough disadvantage to purposefully wait on contribution of an IRA? I figured the longer your money is in the account, the more time it has to grow so get as much in as soon as possible. Over a period of 50 years contributing will average out so lump sum yearly contributions would be OK. Thoughts?
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Oct 31, 2010 17:44
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alreadybeen posted:Is giving up dollar cost averaging a big enough disadvantage to purposefully wait on contribution of an IRA? It has been demonstrated that a completely random investment strategy is statistically no worse than set amounts at set intervals with all other variables (total investment, fees, etc) being equal. I don't have the source for that off the top of my head, so take that however you will. That being said, there are definitely a couple of things to think about when you consider DCA: 1) Are you paying transaction fees with each time you invest? If so, you might want to seriously consider lumping some of those transactions into larger, less frequent purchases. 2) Are you the kind of person who watches the market frequently, or gets anxious about your contributions when the market fluctuates? If so, you might want to consider using a DCA strategy with a scheduled automatic investment program so that you aren't tempted to put off your next contribution due to emotional and/or "analytical" anxiety. alreadybeen posted:I figured the longer your money is in the account, the more time it has to grow so get as much in as soon as possible. Over a period of 50 years contributing will average out so lump sum yearly contributions would be OK. You just contradicted yourself. If over 50 years, contributing in lump sums averages out, then what difference does either method make? Other than that first year, the timeframe could simply be shifted such that it makes no difference mathematically when in the year that contribution was made. Over a long period of time, either strategy will end up the same (statistically speaking) unless you are paying fees with each investment, in which case the more frequent and smaller your contributions the higher your total fee percentage will become. Other than that, the only difference between the two strategies would be that your larger less frequent contributions would tend to cause more variance in your returns, with no effect on the average return. tl;dr version: Is it a big disadvantage to give up DCA? No, unless you end up screwing yourself up by not abiding by an automatic investment schedule and psyching yourself out because of what you perceive is happening in the market.
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Oct 31, 2010 18:39
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alreadybeen posted:Is giving up dollar cost averaging a big enough disadvantage to purposefully wait on contribution of an IRA? I figured the longer your money is in the account, the more time it has to grow so get as much in as soon as possible. Over a period of 50 years contributing will average out so lump sum yearly contributions would be OK. Thoughts? Since the stock market should go up more often than not in any given year, your ideal IRA contribution strategy over a long period of time should be to contribute the maximum amount allowed on the first day of the year. If stocks go up 8% a year on average, an even contribution amount would earn about 4% in the first year, and a lump sum on January 1st should earn 8%. All other years being equal except the first, if done every year it should make a nice average portfolio value difference of +4% or so of the total value of your IRA when you retire, assuming you contribute on Jan 1st every time. So if you manage to accumulate $1,000,000, now you would end up with about $1,040,000. In the end, it probably wouldn't really matter for you when compared to your overall portfolio though, since the 5k you put into your IRA on Jan 1st had to come from somewhere else that is now not invested.
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Oct 31, 2010 19:16
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1) I didn't mention it but going into a Vanguard Roth IRA there are no transaction fees so that should be a non-issue. 2) Good point, I know this about myself, I am absolutely a non-freakout type person and dumped as much as I good into the market each time the dow dropped another 1000 points (actually jacked my 401k up to 50% contribution after tax for a few months at the bottom to take advantage of what I saw was a massively undervalued market and using liquid savings to cover my near non-existent pay checks) I understand as a long term investor low prices now are great for me. 3) As for the contradiction - I should have stated it as a question. "Is lump sum annual for 50 years enough to take advantage of DCA?" I guess I was looking if anyone was more familiar with the math behind DCA to demonstrate how infrequent was frequent enough. That said if DCA is just a tool to beat some of the human element concerns you outlined in point two, I guess I don't have much to worry about. My philosophy is contribute as much as possible until it hurts, and hope the market does alright. Even contributions over the course of a year would mean the average contribution for that year was 6 months later than if I do it all up front. I assume the 4% you mentioned was half of the (debatable) 8% long-term rate of return? alreadybeen fucked around with this message at 19:28 on Oct 31, 2010 |
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Oct 31, 2010 19:24
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Droo posted:If stocks go up 8% a year on average, an even contribution amount would earn about 4% in the first year, and a lump sum on January 1st should earn 8%. All other years being equal except the first, if done every year it should make a nice average portfolio value difference of +4% or so of the total value of your IRA when you retire, assuming you contribute on Jan 1st every time. So if you manage to accumulate $1,000,000, now you would end up with about $1,040,000. You're assuming that the market went up in the first year (which is the only year which will make any difference). If the market went down X% in the first year, then your final value will be equivalently lower.
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Oct 31, 2010 19:28
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flowinprose posted:You're assuming that the market went up in the first year (which is the only year which will make any difference). If the market went down X% in the first year, then your final value will be equivalently lower.
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Oct 31, 2010 20:03
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abagofcheetos posted:Are you able to predict what the market is going to do? No, and I don't understand how you could construe anything I said in that manner? My response to Droo's post was that an X% average gain over a long period of time does not necessarily mean that the first year is an average year. So you can't say that lump sum contributions always have an advantage over DCA of 1/2 * X% average gain in your final portfolio value. If the first year is an up year, the lump sum strategy would statistically be better, if it was a down year, DCA would be better. The point is that the difference between strategies is completely negligible except for differences in variability, with lump sum having the higher variance.
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Oct 31, 2010 20:26
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flowinprose posted:The point is that the difference between strategies is completely negligible except for differences in variability, with lump sum having the higher variance. Just was thinking about it and if you contribute every three months for 25 years at the end the average time of a dollar sitting in your portfolio will be 151.5 months. If you make a contribution Jan 1 each year the average dollar will have been sitting in your portfolio 155.75 months. Obviously how the market reacts during the beginning of each year will vary but assume law of large numbers kicks in, it wouldn't be unfair to assume the advantage is 4.25 months at the average rate of return say 6-8% which could translate into a non-negligible amount.
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Oct 31, 2010 21:42
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flowinprose posted:No, and I don't understand how you could construe anything I said in that manner?
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Oct 31, 2010 22:38
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Let me lay out what I'm saying as simply as I can, and we'll see if we all agree: Investment strategy 1 "Lump Sum": Contribute $5000 on January 1st every year for 25 years Investment stragety 2 "DCA" Contribute $5000/yr divided into 52 equal payments for 25 years. So what happens when we subject these strategies to a randomly generated set of weekly market returns centered on 0.1154% +/- 6%... ? (By the way, this results in an average yearly return of 6%). What happens is that you generate two bell curves, each with a mean of right around around $312,500. The bell curve for strategy 1 will look slightly (maybe even imperceptibly) "thinner" in the middle than the bell curve for strategy 2. Why, do you ask? Because the standard deviation in strategy 1 will be slightly larger. Both strategies are actually the SAME investment strategy with different periods of time between contributions. Isn't it intuitive that the strategy with less frequent, larger contributions would result in a larger variation in possible total return?
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Nov 1, 2010 00:53
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Running 1000 simulations over 30 years with similar random weekly returns as you have (I was too lazy to match the numbers exactly). Random returns are the same for both strategies (i.e. there are the same 1000 random returns generated for each test). Test is run over 30 years. Average Jan 1st: $395,726 (min $67,326 max $2,672,298) Average Even: $386,253 (min $68,655 max $2,563,325) As you can see, on average the lump sum allocation is $9,473 higher, which is 2.4% of the Jan 1st average ending equity. You also notice that the worst-case outcome is lower in the lump sum allocation by $1,329, which is what you were referring to with the wider bell curve. I'm not really sure why you focused on that (instead of return) since it seems fairly obvious that this would happen, but I wanted to point it out in case you think we don't understand what you are saying. Droo fucked around with this message at 02:55 on Nov 1, 2010 |
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Nov 1, 2010 02:17
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Thank you Droo, so it was as I roughly outlined above, higher slightly standard deviation and slightly higher average. More risk, more reward, guess no one is surprised.
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Nov 1, 2010 03:04
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If IRA contributions are based on earned income, can I contribute the whole $5000 on Jan. 1 or would I have to wait until I actually have an earned income equal to the contribution limit?
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Nov 1, 2010 16:04
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Droo posted:I'm not really sure why you focused on that (instead of return) since it seems fairly obvious that this would happen, but I wanted to point it out in case you think we don't understand what you are saying. I focus on the variance because it is very important to do so when you are investing for retirement. Because at some point, you're going to stop contributing and expect to live off the money you generated in your portfolio. Lets say you estimate that you will need at least $200,000 in retirement savings in order to retire 30 years from now (probably not going to be enough, but I'm using a number similar to what you have generated with your data for arguement's sake). So you formulate an investment plan, and decide how much money over that period of 30 years that you need to contribute (within limits constrained by how much you could possibly contribute) given an assumed rate of return in order to reach your savings goal. In our example we are contributing $5000/year with an assumed average rate of return of around 5.5%. Just using the numbers above, 5000/year over 30 years with 5.5% return yields an average of just above $380,000 as you've shown. Sounds great, with an average rate of return considerably higher than our $200,000 estimated minimum for retirement. Except that this information alone says absolutely nothing about the probability of success. Even if the mean final value is $380k, if there remains a 40% chance of ending up with less than $200k, then the variance is probably unaccetably high. (I'm pulling this probability out of my rear end for illustrative purposes) This is the entire concept behind developing an asset allocation appropriate for your retirement goals. If we just recommended to everyone to invest in whatever had the highest expected return without regard to variance, then there would be an awful lot of 60 year olds allocated into a 75/25 stock/bond mixture with overweighting into small caps, value, and emerging markets. Except that intuitively we know thats not such a great idea for someone planning on retiring in 5-10 years unless they have an investment portfolio large enough to withstand the volitility and not end up with a high chance of being below their minimum retirement age needs. Does any of this matter in our example of comparing 5000/yr on Jan 1st to spreading out investments to each week? Probably not, because I suspect the variance is pretty low. It turns out that any potential increase in return is equivalently pretty low. Either method should be fine, but my opinion is that for most people, setting up automatic contributions with their weekly/bi-weekly/monthly paychecks probably makes more sense because they are more likely to stay with it and avoid trying to time the market. Unless they are incurring transaction fees, in which case they should limit the number of contributions and increase their size. Of course if you're investing for retirement you probably shouldn't be investing with anything that incurs transaction fees... but that is another can of worms entirely. Sorry for the  Either method is fine, the differences are slight. Use whichever works best for you. If you have the money to do one lump contribution per year, then fantastic, go ahead. Just be wary of your own ability to psych yourself out of contributing when its due because of what you perceive is going to happen in the market. I consider the matter closed.
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Nov 1, 2010 18:52
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flowinprose posted:Lets say you estimate that you will need at least $200,000 in retirement savings in order to retire 30 years from now Since the average return is shifted higher, the success rate (using $200k) also increases. Average Jan 1st: 370772.424 (min 94121 max 1845635) (85.7% success rate) Average Even: 361904.04 (min 94624 max 1759760) (85.2% success rate)
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Nov 1, 2010 21:00
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4 pillars book is on its way. I'm 25, have no debt, 20k in HSBC online savings, 5k checking balance, 8k in a State of Arizona retirement plan, and am moving 5k of the savings into a Roth IRA with Vanguard. I'm waiting for the transfer to go through. Should I wait to read the pillars of investment book before asking how I should do the investment breakdown, or can I ask for recommendations and explanations like encountered on the first page now, but adjusted for the end of 2010 instead of the middle of 2008? Or are they any different now? At the moment, I've got the "I'll figure it out later" option checked.
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Nov 1, 2010 21:36
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Edit: Nevermind, this derail has gone on long enough.
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Nov 1, 2010 23:21
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What about if you have a market moving sideways? If you have average returns of 0 +/- 3% per week. Thats when the benefit of DCA comes in. A volatile sidways trending market (the past decade) really shows off the benefit of DCA as opposed a consistent upward trend (the 90s).
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Nov 2, 2010 03:48
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Nifty posted:What about if you have a market moving sideways? If you have average returns of 0 +/- 3% per week. Thats when the benefit of DCA comes in. A volatile sidways trending market (the past decade) really shows off the benefit of DCA as opposed a consistent upward trend (the 90s).
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Nov 2, 2010 04:17
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I would like to end up with 4 separate funds or ETFs in my Vanguard Roth IRA. They are: Domestic: VTI or VOO (ETF), VTSMX or VFINX (> $3,000), or VTSAX or VFIAX (> $10,000) Europe: VGK (ETF), VEURX (> $3,000), or VEUSX (> $10,000) Pacific: VPL (ETF), VPACX (> $3,000), or VPADX (> $10,000) Emerging Markets: VWO (ETF), VEIEX (> $3,000), or VEMAX (> $10,000) My questions are: 1. Which domestic fund is better choice, Total Market, or S&P500? I'm leaning towards S&P500. 2. Should I be using funds or ETFs? I'm leaning towards ETFs. 3. What distribution ratio should I be doing for Domestic/Europe/Pacific/Emerging Markets? I'm leaning towards 40/30/20/10. Pissingintowind fucked around with this message at 17:23 on Nov 3, 2010 |
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Nov 3, 2010 15:21
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Is it ever a good idea to consider profit taking in your 401k portfolio? I would just re-invest the profits back into the current funds that I own....maybe buy a tech fund since I am light on that sector. I rolled over a 401k from my previous provider, and instead of contributing to my current employers plan (cause I don't like the options) i just contribute a portion of my paycheck to my personal account and buy more of my funds. I started in June and since then I am up about %9 and i am bullish. If the value of my portfolio increases by $1000 in the near future, I was thinking about taking that $1000 (of house money as I see it) and cashing it out and buying either more of my current funds or a tech fund. Is this illogical? should i just let it ride?
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Nov 4, 2010 14:51
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| # ? May 10, 2024 04:34 |
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imabmf posted:Is it ever a good idea to consider profit taking in your 401k portfolio?
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Nov 5, 2010 05:09
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