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dreesemonkey posted:... This is primarily a tax question. I'm writing this off the top of my head, and my goal is to give you enough info to figure out how to research it more on your own. I can't really tell from your post how much you know, so please forgive me if I explain too much. Here's a quick overview: The money in the traditional IRA accounts and the pension is tax-deferred. Your mom didn't pay taxes on it when it was earned, but she will pay taxes on it when she withdraws it. The idea is that you defer the high taxes from your peak earning years to the low taxes of your retirement years. Taxes should be lower during your retirement years because you are only taxed on the money as you withdraw from your IRA. That money should be taxed as ordinary income, taxed just like it was a paycheck. On this chart, I'm pretty sure your mom's pension fits under the "Qualified Plan" descriptor. Chart - http://www.irs.gov/pub/irs-tege/rollover_chart.pdf More info - http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Rollovers-of-Retirement-Plan-Distributions So you can probably rollover a cash-value pension into a traditional IRA without any taxes. Rollovers don't count towards your contribution limits because there is not a tax-event with the money. It was tax-deferred before it was in the traditional IRA, and it is still tax-deferred after it is rolled over. A rollover is just a process to consolidate the types of accounts. (Note: It only works this way for a traditional IRA - not a Roth IRA. Roth IRAs are not tax-deferred.) There is a process to rollovers. Contact whoever holds the traditional IRA for the forms and process. It's much easier if you fill out their forms and let them walk you through the rollover. If she takes the pension in a lump sum, and aren't any other penalties on it, then it will probably be taxed as ordinary income. That means your mom will be taxed on that money as if she earned a salary of $90k + whatever actual salary she did earn in the year she takes the payout. So if she worked any part of this year, she might want to see about putting it off until next year at least. Finally, if your mom is retirement age, then she might want to consider the Required Minimum Distribution (RMD) and how it will change based on putting more money in the IRA. Basically, the IRS requires that after a certain age you must start withdrawing at a rate designed to deplete most of your IRA account within your lifetime. More info: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions I Hope that gives you a place to start. And Damnskippy, thanks for the book recommendation. (Edit: Shoot, my local public library doesn't have it. Is the counterpoint worth real cash-money?) Folly fucked around with this message at 19:28 on Oct 7, 2013 |
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Oct 7, 2013 19:19
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Damnskippy posted:There are a few academic studies that point to active management being able to add some value. One of the better known is Cremers and Petajisto's 2009 paper "How Active is Your Fund Manager? A New Measure That Predicts Performance." The authors start by better defining what it means to be "active." They calculate the deviation of a fund's holdings from their benchmark and use it, plus tracking error, to differentiate between classes of active management as well as relative degree of active management. My reading of the conclusions is that large swathes of active management are still probably bullshit (sector rotation, bets on systemic risk factors, etc) but that they were able to find a link between active stock pickers and value added over their respective benchmarks, especially in the small cap space. Among these active stock pickers they find that as active-ness increases, so does the performance gap. The amount of work that would be required to find these funds that may have increased performance is probably on the same level (if not more) as doing enough research to pick your own stocks.
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Oct 7, 2013 19:43
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flowinprose posted:The amount of work that would be required to find these funds that may have increased performance is probably on the same level (if not more) as doing enough research to pick your own stocks. I also should have remembered to mention that Vanguard put a good piece out specifically rebutting the findings of Cremers/Petajisto. I don't think they did themselves any favors with the time period they used, which they acknowledge, but it certainly does call in to question how useful active share is over varying time periods. Edit: grammar Damnskippy fucked around with this message at 20:14 on Oct 7, 2013 |
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Oct 7, 2013 20:11
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dreesemonkey posted:My mom is a teacher in her final year before retirement. She was telling me about the different options she has for retirement regarding her pension and I wanted a little more information on the option she was leaning towards if anyone knows about this stuff. The tax hit makes the deal not very good unless your mother expects to die soon or still has a mortgage to clear. In the absence of debts take the full pension. cowofwar fucked around with this message at 20:18 on Oct 7, 2013 |
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Oct 7, 2013 20:13
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Getting rid of the survivor benefit is probably what they're going for.
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Oct 7, 2013 20:47
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cowofwar posted:Never take the lump sum. That said I don't think your numbers are right. $90k versus a $400 decrease doesn't sound right - it would take 18 years for that to break even so I don't understand why they would pay out so much now to save so little. I guess teachers are living too long. I'm not sure I fully understand either, and I should probably just leave it up to my mom to figure it out with someone who knows what they're doing. I was just wondering if it rang any bells for anyone who knows about education/pensions (I know nothing about pentions). It could even be very specific to their school district for all I know in terms of their contract with the state/union(?) The numbers are definitely right, it was $32xx with zero lump sum payment up front and $28xx with the full $90k withdrawn. They'd make some of their money back because with the full $90k withdrawn there is no spouse benefit, so if my mom died my dad wouldn't get anything vs. taking no lump sum, he'd get X number of years until that $90k was drained I think. It seems like the $90k is deposits and interest earned that she has direct access to or something and still receive monthly distributions. Folly posted:Good stuff Thanks, that's helpful. My mom is 61 this year so I don't think she would be forced to start the distributions from any IRA until 70.5 if I read that correctly. That's good to know that she can probably roll that cash value into her traditional IRA because I'm pretty sure that's what she wanted to do in the first place.
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Oct 7, 2013 20:54
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Damnskippy posted:That's a fair point. I still haven't seen a Morningstar or similar company include it in their software yet and it isn't realistic for individuals to run on their own. It's mostly academic at this point. If it was readily available somewhere, then investors would likely pile into these funds. They would grow so large so quickly that they would be forced to diversify and eliminate much of the variation from their benchmark indexes. I know that they claim in the paper that their analysis shows even larger funds maintaining this performance gap, but the gap shrinks with increasing fund size. Logically there is no way that it wouldn't. There is only so much money you can dump into underrated stocks before it starts affecting the price. By the way, if anyone wants to read the vanguard rebuttal Damnskippy mentioned, it can be found here: https://pressroom.vanguard.com/nonindexed/active_management.pdf flowinprose fucked around with this message at 20:58 on Oct 7, 2013 |
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Oct 7, 2013 20:55
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flowinprose posted:If it was readily available somewhere, then investors would likely pile into these funds. They would grow so large so quickly that they would be forced to diversify and eliminate much of the variation from their benchmark indexes. I know that they claim in the paper that their analysis shows even larger funds maintaining this performance gap, but the gap shrinks with increasing fund size. Logically there is no way that it wouldn't. There is only so much money you can dump into underrated stocks before it starts affecting the price. Even if it doesn't end up being predictive, a claim which I'm very skeptical of, I like active share as a measurement because it shines a light on the "active" funds with a very low active share measurement, that charge 1.5% in management fees, and somehow always come in precisely 1.5% below their benchmark. Thanks for that link. I've updated my original post with a link to one of the researcher's pages, which has the original paper plus an updated piece he wrote in early 2013 titled "Active Share and Mutual Fund Performance." (also here: http://www.petajisto.net/research.html)
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Oct 7, 2013 22:15
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dreesemonkey posted:The numbers are definitely right, it was $32xx with zero lump sum payment up front and $28xx with the full $90k withdrawn. They'd make some of their money back because with the full $90k withdrawn there is no spouse benefit, so if my mom died my dad wouldn't get anything vs. taking no lump sum, he'd get X number of years until that $90k was drained I think. Take the lump sum. I don't know why people have such a hard-on for not taking it, probably because some pensions have really lovely lump sum options I guess, and yours is quite good. You have to actually take the present value of the payments too to compare it. There's no tax hit rolling it over as Folly noted. Present value of $400 payments at 3% inflation means that $90k present dollars are worth ~27.5 years of $400 payments. If you can beat 3% investing the lump sum, it's worth more.
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Oct 8, 2013 01:13
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dreesemonkey posted:It seems like the $90k is deposits and interest earned that she has direct access to or something and still receive monthly distributions. This might be the case if she invested some of her own money into the account as well. So they might be offering to return what she had saved along with some interest? Or it might be that she "bought years" and they're offering to refund what she bought?
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Oct 8, 2013 05:56
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Huttan posted:This might be the case if she invested some of her own money into the account as well. So they might be offering to return what she had saved along with some interest? Or it might be that she "bought years" and they're offering to refund what she bought? It might also be the effect of the school system changing over from a defined annuity pension to a cash-based pension. ERISA might require them to keep the part of the old system she was vested in at the time they changed over. But really, I'm just guessing. Step 1, figure out what all of her options are.
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Oct 8, 2013 13:31
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So my guess is that BFC would advise ignoring the potential default of the US debt? I put most of my early investments in bonds to act as a safety net before I started investing in riskier assets. 
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Oct 9, 2013 13:12
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Yes, However, now is a good time to ask yourself the questions: Is your asset allocation structured such that a 40% temporary hit will have a huge impact on you and cause you to run away from the market? Do you actually need to be more conservative?
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Oct 9, 2013 18:29
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Hi, I'm just looking for some advice. I live in the UK, I'm 24 years old and currently earning more money than I ever have before, and now I want to start making it work for me in long term investments. So hopefully I can retire at a somewhat respectable age. I earn about £25,000 a year with my total bills costing roughly around 5-6 thousand. I basically pay rent, water, electricity, gym membership and groceries. I dont have a car, no phone, no medical bills etc. I am currently completely debt free, so where do I start? I have a full budget set up in YNAB, and my savings are growing pretty quickly. I am buying into a bar with my boss (He own's the restaurant I am head chef at) and a couple of other people, I am investing 2,500. But apart from that I don't really know where to go from here, so any advice would be great. Mutual funds? Cheers. fronkpies fucked around with this message at 23:08 on Oct 9, 2013 |
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Oct 9, 2013 22:23
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ntan1 posted:Yes, Yeah a short term hit wouldn't bother me at all since our emergency fund is fully funded and so far my investments are extremely conservative because I wanted my first 2 years of ROTH contributions to be low risk for leverage. If the stock market lost 40% of it's value I would probably be buying.
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Oct 9, 2013 22:41
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I'd be pissed if the market crashed 40% on October 17th... ...because I have only $1900 left in my ROTH contribution limit!
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Oct 10, 2013 04:47
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In an attempt to reduce fees on my 457 account I'm going to try and replicate the target retirement scheme myself. Accordingly I've been debating which broad-market fund to pursue. Obviously there is the usual suspects, but I'm wondering if anyone has an opinion about the Small/Mid Cap Russell 2500 TM? Is heavily investing in just small/mid caps an alright idea or should it be avoided for a more "total market" approach of say a S&P 500 or a Russell 1000/3000.
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Oct 10, 2013 07:39
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fronkpies posted:Hi, I'm just looking for some advice. This thread isn't great for UK advice as it's centered around US tax schemes, however: First off, how much money a year can you save? I assume that you spend a bit on top of your 5-6k outgoings. There are two cases: 1) you can save less than £11,520 (after tax). This number is the ISA limit - ISA provides a tax-free wrapper that means you don't pay any tax on interest or capital gains on anything inside the wrapper. I would put all the money into an ISA account. If you choose to go fully stocks and shares (this includes funds), or split 50-50 between stocks&shares and a cash account, that's up to you and your risk profile. Obviously cash just gives you the interest that is stated on the account, and an investment account can go up or down. If you're going for funds, then do some research into sectors that you're interested in, risk profiles etc. You may want to just buy into a ftse tracker fund. The main thing this thread will tell you is to be aware of management fees. 2) you have more than £11,520 - in this case max out your ISA allocations, and be a bit more creative with the rest. Look up some investment funds if any take your eye. Think about SEIS/EIS investments (actually, find out if the bar you are buying into will support EIS or SEIS as you'll get a substantial amount of money back in the form of tax relief). Or just find a high interest savings account. I recommend Hargreaves Lansdowne as a broker to get a stocks/shares ISA through, it's very easy to set up and get going, and they provide access to a wide range of funds. If you're more risk averse and want a cash ISA, then shop around for the best rates, check out moneysavingexpert.com as a starting point, they do a lot of the work for you! Try to keep 3-6 months worth of costs in a fast access savings account as an emergency fund. Obviously we don't have healthcare issues like the US, but who knows, you may lose your job or have unexpected expenses. If there's anything in this post that you would like clarification or more detail about (or disagree with), just ask!
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Oct 10, 2013 10:14
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INTJ Mastermind posted:I'd be pissed if the market crashed 40% on October 17th... I'm currently sitting on a pool of cash that needs to go in. I figure that it's time to start buying soon. Do I'd want to use a Value Averaging scheme to be all in by, say, October 21? Or is this more of a Dollar-Cost Averaging situation because the big drops are more likely to occur at the end of the cycle than the beginning?
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Oct 10, 2013 14:30
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Folly posted:I'm currently sitting on a pool of cash that needs to go in. I figure that it's time to start buying soon. Do I'd want to use a Value Averaging scheme to be all in by, say, October 21? Or is this more of a Dollar-Cost Averaging situation because the big drops are more likely to occur at the end of the cycle than the beginning? When investing long-term, stop thinking about timing your entry. You're equally likely to miss a rally as you are to miss a a dip if you don't just wrap up your contributions now. And in the 20+ year scheme of things, neither would make a difference.
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Oct 10, 2013 14:51
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The advantage you get from dollar-cost averaging is not worth the disadvantage of sitting on a pool of cash. Averaging (of any type) is only recommended if you're investing regularly when your income comes in. Otherwise, invest when you have it.
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Oct 10, 2013 15:42
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I agree. In fact, that's what I'm trying to avoid. If I wanted to time the market, I'd be sitting on all of it waiting to see the news that the government worked everything out and then try to buy in fast. By using an averaging strategy, I hope to spread it out and mitigate most of the turbulence of the next month or so by averaging my stock purchases to the average price of that time period. Anyhow, I think I've got my strategy worked out. This money is going into ETFs for large US value stocks and large US dividend stocks. I'm going to use a Value Averaging and buy the dividend stocks first. Edit: This cash also represents a reasonably small portion of my investments. And I only worked out what I was going buy about 2 weeks ago. I've just been busy since.
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Oct 10, 2013 15:50
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Yeah I considered Value Averaging and Dollar Cost Averaging for awhile but it really is better to just invest at the beginning of the year or whenever you have the money. I also found that just investing at the beginning of the year helped me stay hands off with my investments anyway.
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Oct 10, 2013 16:45
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Orange_Lazarus posted:Yeah I considered Value Averaging and Dollar Cost Averaging for awhile but it really is better to just invest at the beginning of the year or whenever you have the money. I also found that just investing at the beginning of the year helped me stay hands off with my investments anyway. With a long enough time horizon, investing at the beginning of the year is dollar cost averaging.
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Oct 10, 2013 17:26
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bam thwok posted:With a long enough time horizon, investing at the beginning of the year is dollar cost averaging. Or to put it more precisely, the benefit of dollar cost averaging gets diluted away very effectively over long periods. As a result, a 30.5 year old portfolio that has been dollar cost averaged looks identical to a 30 year old portfolio that used Jan 1 lump sums. Dollar cost averaging forfeits 6 months of returns for no discernable benefit when you're looking at a timeframe like that. Of course, 6 months isnt a huge deal in the scheme of things, so its fine to go with regular paycheck deductions if they fit better in your budget. I like to do Roth IRA and HSA as lump sum in January, but spread 401k year round. Since I'm not capping 401k yet, I can always make it up the next year if I need to slow contributions a little to make room for other things in my budget. It's also hard to frontload 401k contributions for a number of reasons. If you're doing riskier short term investing (10 yrs or less) then DCA has clear benefits that you may want to consider, but those benefits quickly trend towards 0 as time goes on.
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Oct 10, 2013 19:27
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Hey guys, I am on the final pages of 'Four Pillars' and I have a question. William keeps mentioning that good past performance of a fund usually means poor future performance. His explanation for this makes sense. Yet, he keeps recommending value index funds because they have a better return historically (when compared to growth index funds). Could somebody explain to me why in this situation good past performance suggests good future performance? Thanks.
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Oct 11, 2013 04:53
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Yes, you always need to be very careful when considering the length of history you analyze. As Bernstein admits, even he doesn't believe the stock market history over the last 50 years is sustainable. Instead, he things that post inflation, returns should honestly be at average of 5%. However, generally, when he makes his arguments in favor of history, he's referring to a period of time that's 70-80 years. When he's mentioning past performance meaning poor future performance with regards to active funds or individual stocks, he's specifically referring to this in the context of short term performance, and specifically in the context of an actively traded mutual fund. In contrast, the definition of value versus growth in the context of an index fund is pretty much split by a set mathematical formula and always has been. If you were to believe that stock markets as a whole are accurate predictors of growth in an economy, then what he is saying could make some degree of sense. You just have to be careful to analyze based on very long periods of history. This being said, his recommendation on sticking to value based funds isn't something that you need to follow, and one that I don't follow. Instead, I keep much more closely to the total stock market index.
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Oct 11, 2013 06:08
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theHUNGERian posted:Hey guys, It is based on the idea that "value" stocks are riskier, and have greater return. It is identical to the idea that one should invest in stocks for its higher return compared to bonds. If "value" stocks continue to have higher risk, then you can expect a risk premium. In some ways, tilting towards small and value stocks can be considered more diverse than a total market portfolio because you have access to the three risk factors: market (beta), size, and value. Edit: you would want to have a lower total equity portion in your portfolio to make up for the higher risk. 80k fucked around with this message at 06:29 on Oct 11, 2013 |
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Oct 11, 2013 06:25
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ntan1 posted:Yes, you always need to be very careful when considering the length of history you analyze. As Bernstein admits, even he doesn't believe the stock market history over the last 50 years is sustainable. Instead, he things that post inflation, returns should honestly be at average of 5%. Thanks. I figured it had to do with long term performance (20+years) vs. short term performance (3 years), but I wanted to check with the gurus.
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Oct 11, 2013 16:07
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theHUNGERian posted:Thanks. I figured it had to do with long term performance (20+years) vs. short term performance (3 years), but I wanted to check with the gurus. Again, no that is not really the reason. He would not make that kind of explanation without deeper insight into it. Google "Bernstein value riskier" or "Bernstein value free lunch" and Google the same thing with "Fama and French" instead of Bernstein and you will learn more about it.
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Oct 11, 2013 16:44
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80k posted:Again, no that is not really the reason. He would not make that kind of explanation without deeper insight into it. Google "Bernstein value riskier" or "Bernstein value free lunch" and Google the same thing with "Fama and French" instead of Bernstein and you will learn more about it. Yes, as 80k says, it's based on the idea that value stocks have inherently higher return, not just history. That being said, some people claim that focusing on value stock is actually less risky, because of the diversity argument.
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Oct 11, 2013 17:54
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ntan1 posted:Yes, as 80k says, it's based on the idea that value stocks have inherently higher return, not just history. That being said, some people claim that focusing on value stock is actually less risky, because of the diversity argument. I may not have phrased my question correctly. I wasn't only talking about value stocks. I was talking about him recommending 'x index fund' because 'x index funds' have done well over the course of time (last 50 years). Yet, he also claims that 'last years winners will most likely be next years losers' and that nobody should every by a stock or mutual fund based on its performance from the previous years. This seemed like a contradiction to me. EDIT: If CNN had a 1-hour segment that concluded with everybody should by a 500 index fund, would 500 index funds tank next year? theHUNGERian fucked around with this message at 00:41 on Oct 12, 2013 |
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Oct 12, 2013 00:11
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theHUNGERian posted:EDIT: If CNN had a 1-hour segment that concluded with everybody should by a 500 index fund, would 500 index funds tank next year? Unlikely, because the S&P 500 makes up 75% of the whole US stock market, and since the US is what, 40% of the world's stock market capitalization, that is a lot of money already placed in it. I wouldn't doubt that the dividend yield would be lower, and correspondingly the stock market price would be higher due to demand. The P/E would go up and yes, if it continued to be even more over-focused, then investors would move to other assets to get a better risk-adjusted return, moving parts of their portfolio to whole market/small cap, or to EAFE or emerging markets. But with a slice of the pie that massive, some extra hype and purchasing wouldn't cause anything catastrophic to holders of it.
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Oct 12, 2013 04:24
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Sweet, thanks. Unrelated question. Where would I look up data for dividend yield, dividend growth, and actual return for the major American, European, and Asian index stocks. I found the data for S&P500, but for other stocks I can usually only find dividend yield. It takes a lot of googleing and even when I find something, I only find one data point (for 2013), while I would like to have data beginning in the 1950 (if that's possible). If I could have the raw data for two major index stocks per continent, I would be very happy. If it's not obvious, I would like to verify the Gordon equation. Thanks again. theHUNGERian fucked around with this message at 04:56 on Oct 12, 2013 |
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Oct 12, 2013 04:33
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theHUNGERian posted:EDIT: If CNN had a 1-hour segment that concluded with everybody should by a 500 index fund, would 500 index funds tank next year? Maybe, but it would go back up once people who are afraid take their money out. Now, if the entire economy were focused on 500 index funds, that would be a utopia  The reasons why people invest in index funds, specifically things like the 500 index, is that it is close or equivalent to investing in the US stock market or the world economy as a whole. There is historical evidence that world economies grow over time. There is a lot of research that suggests that stock markets as a whole are healthy and represent economies over the long term. Hence, index investors try to peg themselves to the economies of large scale. For a scientific analysis of this, you'd probably want to read "A Random Walk Down Wall Street" in the OP by Malkiel. Careful, as this book tends to be a heavier read than Four Pillars as it talks more about economic theory.
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Oct 12, 2013 04:55
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theHUNGERian posted:Sweet, thanks. Bogle's Little book on common sense investing is a quite good read too. I think it has chapters that mention historical returns and gives explanations for what the current expected earnings are. I don't think it has raw data, but has graphs, mostly US though.
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Oct 12, 2013 10:03
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theHUNGERian posted:
Year to year, who knows, but you would know that up or down those people would be .5% to >1% better than the majority of active funds. This is all about long term investing though and in the "long run" the index has always gone up. Though of course past performance has no impact on the future.
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Oct 13, 2013 04:20
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J4Gently posted:Though of course past performance has no impact on the future. This statement is probably not actually true I think you meant something very slightly different.
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Oct 13, 2013 05:23
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J4Gently posted:Year to year, who knows, but you would know that up or down those people would be .5% to >1% better than the majority of active funds. Past performance is no indication of future performance!
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Oct 13, 2013 14:00
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rhazes posted:Bogle's Little book on common sense investing is a quite good read too. I think it has chapters that mention historical returns and gives explanations for what the current expected earnings are. I don't think it has raw data, but has graphs, mostly US though. Thanks, but I am looking for raw data I can copy/paste into a spreadsheet and it must include the European and Japanese markets (Well, two index funds for each continent would be fine).
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Oct 13, 2013 18:20
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