nelson posted:I'm American, but I found this via Google UK: Pensions seem to be very similar to the 401(k) and right now I'm matching my employer's contributions, but it's the other stuff like the Roth IRA that are confusing me. I don't know what kind of equivalent schemes there are in the UK and how they differ. The Stocks and Shares ISA seems to be closest, but again I'm new to this and don't really understand how they work, or how I should be investing in them.
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Nov 22, 2012 18:37
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nelson posted:I'm American, but I found this via Google UK: I love the way they call them schemes. I'm guessing the word has a different connotation in the UK.
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Nov 22, 2012 18:59
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OBAMA BIN LOADIN posted:Pensions seem to be very similar to the 401(k) and right now I'm matching my employer's contributions, but it's the other stuff like the Roth IRA that are confusing me. I don't know what kind of equivalent schemes there are in the UK and how they differ. The Stocks and Shares ISA seems to be closest, but again I'm new to this and don't really understand how they work, or how I should be investing in them. For example, the Roth IRA was established by the Taxpayer Relief Act of 1997 (Public Law 105-34) and named for its chief legislative sponsor, Senator William Roth of Delaware. The UK and US are close allies but our laws are different. If you want to do some research then come back here and explain how the UK system works I'm sure your contribution will be appreciated.
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Nov 22, 2012 19:14
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OBAMA BIN LOADIN posted:Pensions seem to be very similar to the 401(k) and right now I'm matching my employer's contributions, but it's the other stuff like the Roth IRA that are confusing me. I don't know what kind of equivalent schemes there are in the UK and how they differ. The Stocks and Shares ISA seems to be closest, but again I'm new to this and don't really understand how they work, or how I should be investing in them. Roughly speaking: Pensions -- You can pay in up to £50k/year. Contributions are before tax; assuming you're a basic rate taxpayer, this means paying £100 into a pension will reduce your salary by £80 (if you're paying directly from your paycheck through salary sacrifice, you also save on National Insurance so it only costs you £68!). Once the money's in your pension, it mostly grows tax-free (the main exception being that dividends are taxed). You can't take it out until at least age 55, at which point the current rules either let you take 25% of your fund tax-free and use the remainder to buy an annuity (a fixed or inflation-linked payment for life) or enter into drawdown (where you can withdraw a certain percentage of your cash every year). Taking the money out in either of these ways counts as normal income so you'll be liable to income tax on it (though not NI if you're above state pension age). ISA -- this is like the Roth IRA, but better. You can currently pay in up to £11280/year, of which up to half can go into a Cash ISA (essentially a savings account where you get a better rate because it's untaxed), with the remainder going into Stocks & Shares. You can transfer money from cash to Stocks&Shares at any time, but you can't move money the other way. Contributions are after tax, so putting £100 into your ISA will cost you £100. It grows mostly tax-free in the same way as a pension, with the advantage being that you can withdraw the money at any age and in any way you want -- i.e. there's no need to buy an annuity or mess around with drawdown. You don't pay tax on withdrawals from your ISA. So, essentially, with a pension you pay your taxes when you take the money out, with an ISA you pay your taxes before you put it in. In general the ISA wrapper works out better if you're young and/or expect to move to a higher tax bracket in the future, whereas the pension wrapper becomes better as you get older. You can usually hold identical investments in both wrappers, with the main exception being that your work pension will probably have limited funds -- this could be bad, or it could be good (e.g. if they've negotiated a discount for employees). In terms of which specific investments to hold, the Bogleheads link that 80k posted above is a decent start, though the decision may be influenced by what funds are available in your work pension. I like the Vanguard Lifestrategy funds, which track the markets with a set percentage of equities and handle all the rebalancing etc for you. Hargreaves Lansdown are probably the cheapest providers of ISAs and pensions, particularly if you have a smaller total fund. I hold my ISA with them. You can set up an ISA with them and contribute from £50pm into whatever funds you're decided on. MoneySavingExpert has some decent resources and pretty active/populated forums so you might have better luck asking questions there. k3nn fucked around with this message at 23:06 on Nov 29, 2012 |
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Nov 23, 2012 00:09
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I just saw this: https://www.wealthfront.com/ They estimate your risk tolerance from a questionaire and build you a corresponding portfolio of six index ETFs. Cost seems to be a 0.25% fee from Wealthfront (only on the amount over $25k) plus the fees of the ETFs, so just a little pricier than managing it yourself. E.g. from their FAQ, "A $100,000 Wealthfront account would be 0.32% — slightly higher than Vanguard’s target date fund fee, but lower when the extra performance of having a six asset class portfolio is considered." Oh, and they will manage your tax loss harvesting if you are rich enough. Anybody encountered this or used it?
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Nov 23, 2012 02:27
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slap me silly posted:Anybody encountered this or used it?
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Nov 23, 2012 02:59
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Heh, I just ran myself through it and got a similar impression (wasn't going to sign up anyway, I can handle a few index funds just fine on my own). Based on the risk questionnaire, they suggest a higher stock allocation for me than I actually have - but so does Vanguard. As for the real estate and natural resources allocations, that's stuff I'll consider next year and later but am not interested in right now, and I'll start at 5%, not the 14% they are suggesting. Overall I guess it's pretty hard to guess whether the extra diversification is worth the extra fees. If you didn't know what the gently caress and just wanted someone to take care of your money for cheap, this looks ok but so do the cheaper Vanguard Target Retirement funds...
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Nov 23, 2012 03:18
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I think the upshot is that you should just get a Target Retirement Fund, and if you want a more "advanced" allocation than that offers, just take control of buying your own funds and managing them yourself.
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Nov 23, 2012 06:52
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slap me silly posted:I just saw this: https://www.wealthfront.com/ Also, the venerable John Bogle seems a tad strange because he's spoken out against both ETFs and rebalancing. Probably taken a bit out of context, but anyone else agree?
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Nov 24, 2012 16:23
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Is it common practice to dump 100% of my 401k into a Target Retirement fund? Would that be stupid to do, as opposed to trying to keep a diversified portfolio a la that site that was just linked?
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Nov 24, 2012 21:03
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syphon posted:Is it common practice to dump 100% of my 401k into a Target Retirement fund? Would that be stupid to do, as opposed to trying to keep a diversified portfolio a la that site that was just linked? It is common practice and not a stupid thing to do. The whole point of these target retirement funds is that they are well diversified, and also they manage a balance that is (supposedly) appropriate for your age/target retirement date. However, make sure you're using something with low fees, such as Vanguard's target retirement funds.
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Nov 24, 2012 21:08
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Do different companies use different ways of showing fees? For example, looking at both Fidelity and Vanguard's 2045 retirement funds, Fidelity shows "Expense Ratio: 0.76%" while Vanguard shows "Acquired fund fees and expenses: 0.19%". Are they measured in the same way (and thus, Vanguard being much cheaper) or are the costs measured differently? Also, my 401k is through Fidelity, is it typical to be able to invest in a Vanguard fund like that, or will the expenses/fees be more?
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Nov 25, 2012 01:43
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syphon posted:Do different companies use different ways of showing fees? For example, looking at both Fidelity and Vanguard's 2045 retirement funds, Fidelity shows "Expense Ratio: 0.76%" while Vanguard shows "Acquired fund fees and expenses: 0.19%". Are they measured in the same way (and thus, Vanguard being much cheaper) or are the costs measured differently? Occassionally, a target retirement fund will have a fee above the prorated cost of each fund within it (since it is a fund consisting of many funds). In this case, Vanguard has no additional cost for ER, so the 0.19% is accurate for total cost. My guess is Fidelity is the same way, so you are comparing apples to apples. 401k's often have other fund families. Oftentimes a Vanguard fund offered in a non-Vanguard 401k may even be cheaper than the retail funds at Vanguard due to institutional pricing.
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Nov 25, 2012 02:04
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I come to this thread knowing nothing about money or finance and am ashamed. I just finished my PhD in a biotech field and am working as a postdoc for the next 2-3 years max. That's important because there is no retirement pay in that position and the salary isn't tons better than I had in graduate school. (~40k USD/yr) In grad school I was essentially living from check to check, occasional health problems that insurance did not cover wiped out any direct savings that I had. Before grad school I had a 401(a) that I did not get vested in but the employer contribution remained in a money market account in TIAA CREF. I did not realize that I even had this money until 2009 and I basically put it into the most aggressive investment scheme they allowed. I started with $2100 in 2009 and have about $4000 now. My salary does not really allow me to save $5k a year into an IRA and for at least the next 2 years I will have no employer contribution to any retirement. I am 33 years old, I have no credit card debt, a good car that is paid for, a near perfect credit score and <20k student loan debt consolidated at 3%. What I need to know is what should I do with that 401(a)? After 2 yrs of postdoc employment, I have a very good chance of my salary tripling from where it is and will be able to rapidly clear out student loans / dump far more into retirement. Given all that and the fact that I rarely even remember that I had this money, I am fine with it being in a high risk position. I would also like to just put it somewhere and let it be. The only short term goals I have would be to save for a home downpayment and to buy a home, but that would be at least 4-5 years away.
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Nov 25, 2012 18:58
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Breaky posted:What I need to know is what should I do with that 401(a)? After 2 yrs of postdoc employment, I have a very good chance of my salary tripling from where it is and will be able to rapidly clear out student loans / dump far more into retirement. Given all that and the fact that I rarely even remember that I had this money, I am fine with it being in a high risk position. I would also like to just put it somewhere and let it be. The only short term goals I have would be to save for a home downpayment and to buy a home, but that would be at least 4-5 years away. You have a choice regarding what kind of IRA to go with: Traditional or Roth IRA. A traditional IRA is the simplest and would not result in any costs to you. Moving to a Roth IRA would require you to pay income tax on the amount you put in, but has some significant advantages that make this worth doing. The basic advantage of a Roth IRA is that you pay taxes when you put the money in but not when taking it out (the reverse of a normal IRA), if you are paying what you believe will be a low tax rate compared to the rest of your life this is a significant win. Roth IRAs also offer much more flexibility in accessing your money, including the ability to use the contents of your Roth IRA to make a down payment on a home purchase once in your life. It would be an especially good choice to do this now if 2012 will be an advantageous tax year for you (if you had less income or more deductions than you will in future years). My understanding is that you have until April 15th to take care of any of this IRA stuff and have it still count as occurring in the 2012 tax year (if you do the paperwork properly). Once you've decided what kind of IRA to put the money into, you have the question of what fund(s) to purchase. The simplest strategy for you would be to put the money into a Target Retirement fund. Target funds start off with an allocation balanced towards higher risk and returns, and as you age they shift to more stable, lower-return investments to hold value. The only reason you may not wish to do this is that a Target Retirement fund isn't meant to avoid price fluctuations in the short/mid-term (you don't care about the current value of your assets until you retire), so it may be possible that it's on a downturn in 5 years when you want to take the money out to buy your house. You might want to look at something more conservative like the LifeStrategy Conservative Growth fund, though the cost of more medium-term stability is lower returns. If you'd be willing to say "welp, market just tanked, better wait a year or three to buy a house" then that isn't necessary. Whatever you do, keep making contributions into a Vanguard Roth IRA. I know that $5000/year feels like a lot right now, but every little bit you can put in helps, even if it's just $100/month or even less. Even if you decide you can't or it doesn't make sense to pay the taxes to convert to a Roth IRA, just roll-over into a Traditional IRA and open an additional Roth. The only downside of doing this is you do need $1000 to buy into most funds, so going straight to a Roth does avoid having to save that money up.
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Nov 25, 2012 19:47
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Regarding the 410a, why not leave it where it is, if the fees are ok? Otherwise roll it over into a traditional IRA. Either way, leaving it alone is a great idea. Regarding savings in general - at that salary you can easily be saving $100+/mo even after loan payments, right? Accumulate it in a savings account until you have enough cash for emergencies, then start contributing it to a Roth IRA. You don't need to hit the $5k max but you should be contributing some. It'll make a difference in your long-term earnings, but importantly also in your habits. Save a few bucks out for short- to middle-term big expenses, too: car, house fund, hobby poo poo, whatever. Looking to the future: with those loans at 3%, it could be reasonable to increase your retirement savings instead of paying them off right away. Depends on how you feel about having them.
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Nov 25, 2012 19:50
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Thanks, both responses are very helpful. At present I am *just* now hitting a comfortable level of savings that I'd like to keep on hand and am now looking at throwing 100-300/month into something else, hence why I started to go back and see what that 401a was doing and then came here. I've been out of grad school for a year, but only just now cleared out some small immediate debts and started to re-establish savings of any kind. And yeah on the student loan with the low interest rate at present I am just making the minimum payments until my salary situation changes. I am quite confident the next job I get will pay considerably more. I'll look into the fees for the current 401a, what would be considered "reasonable" fees anyway? If they are in fact good I could just leave that alone and set an immediate goal of saving up another 1-2k and getting a separate Roth IRA started / make regular contributions to.
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Nov 25, 2012 19:56
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Breaky posted:I'll look into the fees for the current 401a, what would be considered "reasonable" fees anyway? If they are in fact good I could just leave that alone and set an immediate goal of saving up another 1-2k and getting a separate Roth IRA started / make regular contributions to.
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Nov 25, 2012 20:05
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Yeah, that. If the fees are much higher than 0.2-0.3% where it is now, do the paperwork and roll it over. A 1% fee over a long period of time gets pretty costly. There are per-fund minimums most places. For Vanguard it's usually $3k, so your 401a money would have to go into a single fund and the Target Retirement ones are good bets. You'd need to save up another $3k before you could open the separate Roth IRA - so just open a separate savings account dedicated to that for now.
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Nov 25, 2012 20:10
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Awesome. Thanks guys!
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Nov 25, 2012 20:37
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Hi all. My parents have a large portion of their retirement accounts managed by a money manager who takes approximately a 1%-of-the-whole-amount fee annually. He's apparently a nice guy, but doesn't, by all accounts, DO a whole ton. I just began reviewing the accounts as best I could*. He's got them in a whole bunch of different mutual funds, mostly, some actively managed, with expense ratios that aren't absurd but are certainly higher than non-actively managed funds. Returns seem decent but nothing totally wild. I think it's pretty clear that they could save a lot of $$$ managing their own money (passively) and not paying the fee, right? And returns might, in fact, be better with a smaller expense ratio overall. I am not even sure that this guy's returns are beating the market BEFORE fees. My questions, I guess, are "what are the things I am not thinking about" and how significant are the risks to moving the money away from the manager for them to manage it on their own? Has anyone helped their parents do this before? Should I try to continue researching what they are currently in and match it as well as possible at Vanguard for a suggested plan? Or if they have a bunch more money than I do and a 10-year-or-so retirement horizon, is "Vanguard Target Retirement 2025" still a reasonable place for them to put their money? Should I butt out, given that I'm not actually an expert? They seem open to the idea of leaving the money manager, but I need to have a suggestion for what they do instead. I'm worried that moving them from all these complex, specific funds to a Target Retirement (and/or a few other Vanguard indexes) either *is* or will *appear* to be hopelessly naive and risky. But I can't imagine that having someone who's not a total genius overseeing their retirement funds is worth 1% of their nest egg each year, so I am pretty sure I want to help them get away from that. Right? *I am not a finance professional; I am an interested layperson of the "automated dollar-cost-averaging in a Target Retirement for my Roth IRA and 401k" school who has learned most of what I know from a few books and this forum.
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Nov 26, 2012 23:36
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onefish posted:But I can't imagine that having someone who's not a total genius overseeing their retirement funds is worth 1% of their nest egg each year, so I am pretty sure I want to help them get away from that. Right? Talk to your parents, tell them how much money they are flushing down the toilet, and get them in an appropriate mix of domestic index funds, international index funds, and bonds. If you want a fire-and-forget get them in a Vanguard target retirement. Giving a guy 1% to put money into mutual funds which also have high expense ratios is completely insane. If they have a retirement-appropriate nest egg of ~$2 million, that 1% would be $20k a year. With the current options available, they have no need to ever pay more than .3% expense ratio at an absolute maximum.
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Nov 26, 2012 23:55
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onefish posted:But I can't imagine that having someone who's not a total genius overseeing their retirement funds is worth 1% of their nest egg each year, so I am pretty sure I want to help them get away from that. Right?
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Nov 27, 2012 00:47
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A guy who is charging 1% should be helping with tax strategy and estate planning as well, which at a certain point is a lot more important than the actual investments (see romney). Although personally I'd rather do the investing myself and hire an accountant.
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Nov 27, 2012 01:13
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I was just able to move some IRA money into Vanguard's Admiral shares. How sick am I to be drooling over the difference between 0.22% and 0.10% expense ratio...
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Nov 27, 2012 16:56
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Well, assuming that you're looking at $10k making 8% for the next 35 years, you just made yourself an extra $177 which is pretty good for just moving some money around  vv Unfortunately you cannot rollover your 401k while you a still employed. Initio fucked around with this message at 17:42 on Nov 27, 2012 |
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Nov 27, 2012 17:10
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I've never done a roll-over before so I'm wondering if it's possible to roll my wife's employer sponsored 401k over to a traditional IRA on an annual (or more regular) basis. I can get far better options and lower expense ratios through Vanguard. Is there a limit on how many tax advantaged retirement accounts a person can have? It seems weird having an 2 IRAs (One for me and my wife) 2 Roths (once again one for me and my wife) and 1 401k through my wife's employer. slap me silly posted:I was just able to move some IRA money into Vanguard's Admiral shares. How sick am I to be drooling over the difference between 0.22% and 0.10% expense ratio... Besides saving a little bit of money on expenses you also get to say that you've invested in "Admiral" shares. Sephiroth_IRA fucked around with this message at 17:42 on Nov 27, 2012 |
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Nov 27, 2012 17:32
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Thank you for responses!moana posted:Right. If you're concerned about not having a specific enough plan, post the allocations that they have here, along with the fees. We can try to figure out a way to do a passive equivalent so that you have something to offer them as an alternative. Thanks tremendously for this offer. I'm going to get the info again (left the paper statements* at home after Thanksgiving, don't have electronic statements yet), then see about doing a percentages roundup here if needed. *which were annoyingly incomplete--I can't figure out exactly where his fee is coming from or when it's taken out, but my parents say it's definitely from the money he manages and not from other accounts. Baddog posted:A guy who is charging 1% should be helping with tax strategy and estate planning as well, which at a certain point is a lot more important than the actual investments (see romney). Although personally I'd rather do the investing myself and hire an accountant. Totally. And they *have* a separate accountant. And while they have a retirement-appropriate amount saved, it's not so much where I think estate-planning would be a big deal. They're not even totally certain if he takes .5% or 1%, though they mentioned the 1% figure more often and seem to think it's more likely. But either way, it doesn't seem worth it.
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Nov 27, 2012 21:10
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You're sure that these are not loaded funds?
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Nov 27, 2012 21:34
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onefish posted:... They're not even totally certain if he takes .5% or 1%, though they mentioned the 1% figure more often and seem to think it's more likely. But either way, it doesn't seem worth it. I should get into financial planning. Seems like such easy money. Well, they probably got a lot of angry calls in 2008.
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Nov 27, 2012 22:23
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Baddog posted:I should get into financial planning. Seems like such easy money. Well, they probably got a lot of angry calls in 2008.
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Nov 27, 2012 23:04
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Watch American Greed sometime. 90% of the stories is some rich guy promises 14% return to other rich people and it's somehow a scam.
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Nov 28, 2012 02:42
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Yeah, I'm reading Four Pillars right now and right now the author is going on about how the people who are paid to managed funds are really no better than monkeys who have been trained to throw darts at the Wall Street Journal and buy the stocks they hit. For example only something like 10% of the companies that manage pension funds (and these people are supposed to be the best) outperform (They average a 60% stock/40% Bond split) a 60/40 Split on the S&P500 and some other major bond index. Those that outperformed didn't do so by very much anyway. and.... they get rich whether or not they fail because of their commissions. Sephiroth_IRA fucked around with this message at 17:32 on Nov 28, 2012 |
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Nov 28, 2012 17:29
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Just curious: often do you retirement-planning mavens look at your 401(k) or IRA accounts? I've heard that it's unnecessary (and can even be detrimental, at least psychologically) to frequently check in on the value, even if it's advisable to examine the allocations every once in a while. (Personally, I see my 401(k) balance every time I log into Mint, which is almost every day.) And one amateur: when considering retirement-account performance, what benchmarks should I be comparing it to? I think my returns this year have been good, but am not sure how to test the assumption.
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Nov 28, 2012 21:22
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Actie posted:Just curious: often do you retirement-planning mavens look at your 401(k) or IRA accounts? I've heard that it's unnecessary (and can even be detrimental, at least psychologically) to frequently check in on the value, even if it's advisable to examine the allocations every once in a while. (Personally, I see my 401(k) balance every time I log into Mint, which is almost every day.) I rarely check more than on every month or two. As for benchmarking, if you are using index funds and rebalance regularly (even once yearly is enough), there is no need to benchmark. Your allocations should be based on risk preferences and the returns are what they are. Benchmarking will just make you wishy washy.
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Nov 28, 2012 21:39
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So I wanted to start a savings account in case I need to use it in an emergency or for a down payment on a house or something. It should be reasonably hard to withdraw from (like more effort than a savings account), and it should give a reasonable rate of return while avoiding large dips. Some dips are acceptable, so all in a savings account with a bank or Treasury inflation protected securities doesn't seem risky enough. At the same time, the 80% stock 20% bonds mix I have in my 401(k) seems like a bad idea. What I did was open an account and put all the money in a long-term municipal bond fund with a low expense ratio. The fund is VWLTX, with a .2% expense ratio. The logic here is that municipal bonds are safer than corporate bonds, while still getting a higher return than treasury bonds or what have you, and all of the interest on the bonds is not taxable. This last part seems important because it is not in a 401(k) or IRA. So far, it has shown a return of about 9% per year. This seems very high, but I don't really know. Also, since that return is tax exempt, I get to just multiply it by about 1.3 to find out what it would have to be if it were taxable This would be like having a 12% return on corporate bonds, which would be outstanding. I have also set it to withdraw some money from each biweekly paycheck and buy more of the same fund, without diversifying at all beyond this one fund. Does this seem optimal? Are muni bonds as reduced-risk as I am making them out to be? Is this a reasonable return? Am I understanding the tax-exempt nature of returns from muni bonds correctly? Should I still have some percentage, perhaps 30%, in one or more stock index funds? Do you have a better idea?
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Nov 29, 2012 02:18
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Supposedly municipal bonds have been on the brink of destruction for like 3 years now.
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Nov 29, 2012 02:22
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that would explain the 9%. I guess maybe corporate bonds is the answer?
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Nov 29, 2012 02:38
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Celot posted:Does this seem optimal? No. First off understand that you happened to have owned bonds over the past year which has been an incredible bond bull market. Past returns =/= future returns. Typically municipal bonds are used by people/entities which very high marginal tax rates and are priced in the market as such, so unless you're in the top tax bracket you're probably better off in other types of credit. You're essentially all-in on a specialty niche credit product which you're not even the optimal holder of. Celot posted:Are muni bonds as reduced-risk as I am making them out to be? No. They may be less risky than equity (stocks) but are likely just as risky as comparably rated corporates which are still pretty risky. You not only have municipality-specific exposure depending on how diversified you are but you are broadly exposed to interest rate changes and muni spreads. If you're using this as an emergency fund or for a necessary future purchase this is too risky, not even comparable to a savings account or money market etc. Celot posted:Is this a reasonable return? Yes, but see above past performance =/= future returns Celot posted:Do you have a better idea? You're probably not a sophisticated enough investor to navigate specialty/niche products like munis. I would stick with some combination of X% diversified US equity ETF X% US Bonds X% Risk free investments (CD, savings, etc). Depending on how soon you want to be buying a house and how much you need in the event of getting laid off/medical emergency etc adjust accordingly. I.E. longer out you see yourself buying a house lower % risk free and credit higher % equity. Obviously I'm an internet poster and not a financial advisor so feel free to find one for much better advice than my lovely posting.
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Nov 29, 2012 02:40
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Swingline posted:You're probably not a sophisticated enough investor to navigate specialty/niche products like munis. I would stick with some combination of X% diversified US equity ETF X% US Bonds X% Risk free investments (CD, savings, etc). Depending on how soon you want to be buying a house and how much you need in the event of getting laid off/medical emergency etc adjust accordingly. I.E. longer out you see yourself buying a house lower % risk free and credit higher % equity. Obviously I'm an internet poster and not a financial advisor so feel free to find one for much better advice than my lovely posting. Why would you go with ETFs over mutual funds?
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Nov 29, 2012 02:43
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