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I make like 18k a year, is it worth it for me to do any of this 401k and Roth stuff? I'm looking at what, 40k by the time i'm 65? I'm 25 right now. My company doesn't match, instead they get like a percent of their earnings and they split it among their employees, if that makes sense.
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Jun 17, 2014 23:31
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Abu Dave posted:I make like 18k a year, is it worth it for me to do any of this 401k and Roth stuff? I'm looking at what, 40k by the time i'm 65? I'm 25 right now. My company doesn't match, instead they get like a percent of their earnings and they split it among their employees, if that makes sense. This is the best time for you to put things into a Roth because your income taxes are so low. Also, with your income, the IRS will do the matching: http://www.irs.gov/uac/Get-Credit-for-Your-Retirement-Savings-Contributions
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Jun 17, 2014 23:54
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Hey that's cool I didn't know that. My slip thing asks for Before-Tax Contributions amount (per pay period) and a Roth Contributions, should I be putting like $10 into each? There's also another form with what looks like a bunch of stocks like American Funds AMCAP, Franklin Growth etc and it wants me to choose ones, do I have to do that if I just want to do a Roth contribution? I'm genuinely confused about all this  .
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Jun 18, 2014 00:03
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Abu Dave posted:Hey that's cool I didn't know that. My slip thing asks for Before-Tax Contributions amount (per pay period) and a Roth Contributions, should I be putting like $10 into each? There's also another form with what looks like a bunch of stocks like American Funds AMCAP, Franklin Growth etc and it wants me to choose ones, do I have to do that if I just want to do a Roth contribution? I'm genuinely confused about all this Do not put anything into before-tax. Your income bracket is low enough that paying taxes later (what before-tax does) will almost certainly take a larger % chunk. Put everything into Roth. Maybe start at like 40$ a month and try to move up from there? It is also easier to get stuff out of a Roth later if you need to. As far as where to put it: If you have a target date fund (typically something with a year on it, like 2040 or 2045) that is a good place to throw it for now. If not, a Total Stock Market fund of some sort is good. Otherwise maybe just post a list of what your options are (preferably with expense ratio that you pay for each) and people here can probably provide guidance.
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Jun 18, 2014 00:07
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Abu Dave posted:I make like 18k a year, is it worth it for me to do any of this 401k and Roth stuff? I'm looking at what, 40k by the time i'm 65? I'm 25 right now. My company doesn't match, instead they get like a percent of their earnings and they split it among their employees, if that makes sense. Save 10-20% of income your whole life and you are all but guaranteed a comfortable retirement regardless of income. What if you are low income your whole life? If you are always waiting for a bigger paycheck before you start saving you might find yourself 65 eating cat food. Suppose you get a high paying job sometime in the future. Even on this case a dollar saved now in a Roth is literally worth a guaranteed 10-30% more than a dollar saved when you are higher income on tax savings alone. Then add in the compounding gains over time and it adds up fast.
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Jun 18, 2014 00:08
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Velochis posted:Save 10-20% of income your whole life and you are all but guaranteed a comfortable retirement regardless of income. Just to play devil's advocate here a bit: What are your plans to increase your income? Paying for training (even going into debt to do so) can pay off big time if you are careful to pick something that makes sense. For example a (2 year?) nursing course can result in an income that is like 3x your current income. Saving is good, but investing in yourself also makes sense especially when your salary is low. Just make sure you really are investing in yourself and not wasting money. For example, dropping 15k on a code camp because developers make money might be a complete waste.
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Jun 18, 2014 00:18
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I have no avenues to earn more money other than a yearly .30 cent raise until I imagine i make too much i'm sacked. But in the mean time Ill try to put $40 a month into a Roth IRA, thanks for all the advice guys. e; Also should I spread the Target Date funds around or dump 100% into one? Empress Brosephine fucked around with this message at 01:00 on Jun 18, 2014 |
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Jun 18, 2014 00:29
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Abu Dave posted:I have no avenues to earn more money other than a yearly .30 cent raise until I imagine i make too much i'm sacked. But in the mean time Ill try to put $40 a month into a Roth IRA, thanks for all the advice guys. Only go into one target date fund, they're pretty similar if you're 30-35 years out, they start changing closer to retirement. Check out the composition of Vanguard 2015/2020/2025/2035/2055 and you'll see what I mean.
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Jun 18, 2014 01:05
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code:
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Jun 18, 2014 01:18
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Abu Dave posted:
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Jun 18, 2014 01:28
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Abu Dave posted:
Yeah, the funds that aren't target date funds have a pretty stupidly high ER. I would just throw all of it into the target date fund that most closely reflects your likely retirement age. Basically whatever is closest to when you'll turn 65. So if you are 29 right now, that would be 2014 + 36 => 2050 so American Funds 2050 Trgt Date Retire R3 (RCITX) 0.70% Nitpicky thing: You said Roth IRA but listed funds like it is a 401k. I'm pretty sure you are talking about using your 401k and designating the contributions as "Roth". A "Roth IRA" is something slightly different and doesn't involve your employer at all. In most IRAs you can pick from thousands of options rather than just 20 or so that your employer picks for you, but it has other downsides like frequently needing a minimum initial investment. You can ignore my nitpicky paragraph here, but I felt obligated to call it out and hopefully explain the difference. A 401k is with your employer, and an IRA is something you do on your own, and both can be pre-tax or Roth.
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Jun 18, 2014 01:29
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Yeah you're right my bad, it's a 401k but you can designate it as Roth. Should I still ignore the Before-Tax field and put my contribution in the Roth field? e; SiGmA_X posted:Humm. Your funds are really expensive. Do you get an employer match? If so, I would go for the target fund within your Roth 401k offerings. If not, I would start dropping $40/month or something like that (more is better - shoot for 15% of gross income) into a Vanguard money market fund until you hit $1k and can open a target date Roth IRA with them. The ER is a little under 0.2% for Vanguard target funds. They have profit sharing instead of matching. Empress Brosephine fucked around with this message at 01:33 on Jun 18, 2014 |
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Jun 18, 2014 01:31
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Abu Dave posted:Yeah you're right my bad, it's a 401k but you can designate it as Roth. Should I still ignore the Before-Tax field and put my contribution in the Roth field?
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Jun 18, 2014 01:41
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Someone asked earlier in the thread but if I do that, would it be a bad idea to delegate like $5 a week from my paycheck just to get the money from the profit-sharing?
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Jun 18, 2014 01:43
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Abu Dave posted:Someone asked earlier in the thread but if I do that, would it be a bad idea to delegate like $5 a week from my paycheck just to get the money from the profit-sharing? I considered doing this at my company, but my plan administrator said my boss is cheap and has never actually put money into the profit sharing! Contact your plan administrator and see if they'll tell you what the average yearly payout is for the profit-sharing (if anything).
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Jun 18, 2014 01:46
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Abu Dave posted:Yeah you're right my bad, it's a 401k but you can designate it as Roth. Should I still ignore the Before-Tax field and put my contribution in the Roth field? Yes. Ignore before-tax and put it all into Roth.
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Jun 18, 2014 01:57
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Abu Dave posted:Someone asked earlier in the thread but if I do that, would it be a bad idea to delegate like $5 a week from my paycheck just to get the money from the profit-sharing?
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Jun 18, 2014 15:25
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moana posted:Oh, you don't get profit sharing unless you contribute at all? Then yes, do that. Still shoot for 15% contributed across all retirement accounts.
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Jun 18, 2014 15:49
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So my 401k options are just an S&P 500 fund, a mid-cap growth fund, and a TIPS fund. My Roth can be anything. I intend to max out my 401k and Roth. Now I need to pick allocations. It seems like TIPS are too conservative to include at all, but if I don't have any of my 401k in TIPS, then my Roth has to be almost totally in bonds. Does this look about right?  So that means I get barely any exposure to small cap value, large cap value, or international stock. Maybe I should put part of my bond allocation in those TIPS in my 401k in order to free up room in the Roth for other stuff? Or maybe I should decrease my 401k withholding and put it in an HSA instead, and just have the HSA be 100% bonds? Celot fucked around with this message at 21:53 on Jun 18, 2014 |
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Jun 18, 2014 21:42
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Celot posted:So my 401k options are just an S&P 500 fund, a mid-cap growth fund, and a TIPS fund. First glance reaction, too light in international and maybe too heavy in bonds, but that's more up to you due to risk tolerance.
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Jun 18, 2014 21:48
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SiGmA_X posted:First glance reaction, too light in international and maybe too heavy in bonds, but that's more up to you due to risk tolerance. I'm 26, so 15% bonds in my portfolio seems a little on the aggressive side, don't you think? I don't really know how to get more exposure in international stocks. Halving my bonds only gets me up to like 10% international. Celot fucked around with this message at 21:56 on Jun 18, 2014 |
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Jun 18, 2014 21:54
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Celot posted:I'm 26, so 15% bonds in my portfolio seems a little on the aggressive side, don't you think? Not really. I'm 30 and I've got 90% of my retirement money in stocks. I don't see an issue with it. I'm not planning on touching that money any time soon, and stocks unquestionably go up more than bonds over loooong periods of time.
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Jun 18, 2014 22:16
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If you want to change your allocation in any meaningful way your going to have to add a third account as the amount you can contribute to a 401k is significantly more than an IRA and thus will make the allocation worse every year. You definitely should Max the HSA after 401k matching limits and IRA limits are reached.
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Jun 18, 2014 22:20
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Celot posted:I'm 26, so 15% bonds in my portfolio seems a little on the aggressive side, don't you think? Brian Fellows posted:Not really. I'm 30 and I've got 90% of my retirement money in stocks. I don't see an issue with it. I'm not planning on touching that money any time soon, and stocks unquestionably go up more than bonds over loooong periods of time.
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Jun 18, 2014 22:33
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Zero percent bonds for me thanks, I have P2P loans earning twice what a high-yield bond index can give me, even theoretically. If high yield bonds cross 10% yields or so, then I'd be interested again perhaps because it's much easier to hold in tax-advantaged accounts.
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Jun 18, 2014 22:40
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baquerd posted:Zero percent bonds for me thanks, I have P2P loans earning twice what a high-yield bond index can give me, even theoretically. If high yield bonds cross 10% yields or so, then I'd be interested again perhaps because it's much easier to hold in tax-advantaged accounts.
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Jun 18, 2014 23:06
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I have less than 5% bonds at 26. I am intentionally being aggressive on equities, domestic and international, at a young age.
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Jun 18, 2014 23:13
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It's been repeated several times in this thread that 10% bonds provides a very significant improvement in your risk profile without making a significant impact on your long-term earnings. Opinions differ obviously, but mine is that nobody should have less than 10% bonds in their retirement portfolio.
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Jun 18, 2014 23:21
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Leperflesh posted:It's been repeated several times in this thread that 10% bonds provides a very significant improvement in your risk profile without making a significant impact on your long-term earnings. In a world where everyone know 0.5% costs make a big difference over the years, why don't you believe that 0.5% statistically lower returns won't? Because 10% bonds do that. Bonds are there to lower portfolio volatility and provide for rebalancing opportunities, but right now, bond returns are particularly sucky and without much in terms of prospects. If you can handle the volatility, I say why go bonds?
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Jun 18, 2014 23:53
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asur posted:If you want to change your allocation in any meaningful way your going to have to add a third account as the amount you can contribute to a 401k is significantly more than an IRA and thus will make the allocation worse every year. You definitely should Max the HSA after 401k matching limits and IRA limits are reached. Gonna go with dis. HSA in a low risk fund like bonds makes sense on its own anyhow.
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Jun 19, 2014 01:31
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baquerd posted:In a world where everyone know 0.5% costs make a big difference over the years, why don't you believe that 0.5% statistically lower returns won't? Because 10% bonds do that. You sound like a market-timer to me. The difference between 0.5% in expense ratio vs. 0.5% in "statistically lower returns" is that I know for a fact what expense ratio I'm going to pay this year, and I have only historical return series to suggest what bond returns might look like over the next whatever number of years. I think 15% is fine Celot, if that's what you feel is appropriate for your risk tolerance. Of course these posters may make you re-think exactly where your risk tolerance should be, but I wouldn't go zero percent bonds just because "everybody knows" that bond returns are going to be low. Echo 3 fucked around with this message at 15:10 on Jun 19, 2014 |
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Jun 19, 2014 15:02
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I've noticed that bond funds tend to have really high expense ratios, which is one of the main reasons I don't have much in them. Do I just have lovely bond funds?
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Jun 19, 2014 15:59
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SlightlyMadman posted:I've noticed that bond funds tend to have really high expense ratios, which is one of the main reasons I don't have much in them. Do I just have lovely bond funds? Probably. Vanguard's Admiral Total Bond Market fund is 0.08% ER, vs 0.05% ER for their Total Stock Market fund. Basically a negligible difference.
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Jun 19, 2014 16:52
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Echo 3 posted:You sound like a market-timer to me. The difference between 0.5% in expense ratio vs. 0.5% in "statistically lower returns" is that I know for a fact what expense ratio I'm going to pay this year, and I have only historical return series to suggest what bond returns might look like over the next whatever number of years. I think 15% is fine Celot, if that's what you feel is appropriate for your risk tolerance. Of course these posters may make you re-think exactly where your risk tolerance should be, but I wouldn't go zero percent bonds just because "everybody knows" that bond returns are going to be low. That's me, I'm timing the market because I don't want to invest in bond funds that are, right now, yielding 2-4% unless I want to go super-long duration and/or super high risk, where the only way the yield will go up is if the price tanks first. If you want to engage in short-term speculation that interest rates will go back down to historical lows and then sell as the price goes up, or if you believe that 2-4% yield is A-OK, then by all means invest in bonds. It's not about what "everybody knows", it's that there is *no* logical explanation for how you could invest in a bond index fund right now and make decent returns over the long run from your investment today.
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Jun 19, 2014 17:26
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Hehehe. I would love to hear either side of this discussion make some actual long term quantitative projections for different portfolios, being very clear about what the assumptions are...
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Jun 19, 2014 17:41
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baquerd posted:That's me, I'm timing the market because I don't want to invest in bond funds that are, right now, yielding 2-4% unless I want to go super-long duration and/or super high risk, where the only way the yield will go up is if the price tanks first. I agree with your sentiment, but saying investing in bond funds is absolutely wrong is false. There are a few possible scenarios that make them correct, and putting *some* money into bonds is a hedge against that happening: 1) Recession. People flee to treasuries/bonds as stocks fall. Even if bonds fall, they don't crash as hard as stocks, letting you rebalance some bond $$ into stocks to gain in the long term 2) Deflation (admittedly unlikely) 3) Any sort of market panic which makes stocks dive while bonds are less affected. Are bonds likely to return better than stocks over the next 30 years? Hell no. But it does make sense to put at least some in bonds to harvest the yield and to have some assets that are less correlated (and usually negatively correlated) with stocks so that you can convert them into stocks when they are cheap. All that said, I have a really hard time putting money into bonds right now and only have 6% of my total allocation in bonds. As tapering ends and the fed starts moving interest rates back up again I'll probably increase that gradually to 25%.
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Jun 19, 2014 17:43
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I'm excited to see the Bond Psychics know exactly when rates have increased to the new normal and buy back in.
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Jun 19, 2014 17:51
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slap me silly posted:Hehehe. I would love to hear either side of this discussion make some actual long term quantitative projections for different portfolios, being very clear about what the assumptions are... I'm not here to make projections, that's the whole point. Given that we can't see the future, we have to do the best we can, and we know that owning some bonds provides diversification and (if asset prices are mean-reverting and stocks and bonds are negatively correlated, which I think are probably both true) rebalancing can provide some additional returns. If bonds are so terrible, why does anybody own them? Back in 2011 Treasury yields looked super low, Bill Gross pulled out of them because he just knew that yields couldn't possibly go any lower, guess what happened? Yields went lower. I'm not saying that bonds are an amazing investment, I'm saying that I don't have a crystal ball so I feel that it's much better to have some allocation to bonds in case of any of the scenarios Vilgan just identified or anything else that we can't predict now.
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Jun 19, 2014 17:55
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Where does real-estate fall into this long-term investing? I'm not talking about REITs, but actually buying and renting out properties in major cities. In my experience their return is approximately that of bonds in direct rental revenue, and in places like London, NYC etc. house prices are a fairly safe bet in terms of capital returns as well. Personally I'm heavily long London property and so I don't own any bonds, but I'd just like to hear other opinions on this.
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Jun 19, 2014 18:05
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GoGoGadgetChris posted:I'm excited to see the Bond Psychics know exactly when rates have increased to the new normal and buy back in. I don't really want to invest in bonds at a new normal, I want bonds when they're yielding 10-15% or more because I know I can get similar returns elsewhere in the mean time. I have over $80k in P2P loans right now that have yielded over 14%/year since 2008, and I'm working on getting my first rental property. Maybe I'm leaving money on the table in certain re-balancing scenarios, but the possibility of that is not something I want to give up real returns for.
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Jun 19, 2014 18:08
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