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District Selectman posted:I still think the only way you ever really discover your risk tolerance is by losing a ton of money. I currently keep my 401k 10% cash and 10% bonds because I had to learn the hard way. I thought I was a high risk guy too, until 2009 happened. Four years of investments, poof, 40% gone. Great time to start investing though in the long run. Best time to start investing is right around the start of a crash. Lots of fun painful lessons, followed by years of enormous gains, eventually. I still take some risks investing for sure because my stomach is stronger now, but I'm less unflinchingly optimistic than my younger coworkers, who only know the bull market from like 2011 until now. Whenever the next correction/crash is, I'm sure they'll promptly poo poo themselves. I lot of places like well known robo-advisors also push people towards really risky 90 equities/10 bond allocations to build wealth. Four Pillars has a nice bit on while having at least 20% in bonds is a good idea given how people often lose piles of money in a bear market by making panicky emotional decisions. Having a bigger bond allocation helps avoid this big emotion driven mistake.
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Nov 1, 2014 02:45
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etalian posted:Four Pillars has a nice bit on while having at least 20% in bonds is a good idea given how people often lose piles of money in a bear market by making panicky emotional decisions. The smart investor invests in getting a Xanax prescription.
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Nov 1, 2014 05:59
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jjack229 posted:Given what I think is a relatively high tax bracket (I am nearing the phase out for Roth IRA's) quote:To further complicate matters, I am in the process of getting divorced. You're getting too excited about moving money around. Especially with a divorce. I'd advise patience. If you want to start messing with accounts do it after the divorce is finalized. Even without the divorce, Vanguard is good. I would just leave your money with them as there is no good reason to move it. Plus, I wouldn't bother rolling anything into a Roth IRA unless you were in a LOW tax bracket since you'd have to pay tax on it. Save the rollover for a gap year when you have no income (leave your money in the 401k if you're working straight through to retirement). nelson fucked around with this message at 15:18 on Nov 1, 2014 |
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Nov 1, 2014 12:27
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nelson posted:You are not taking into consideration that the Roth limit is Adjusted Gross Income, not Gross Income. Any money you put into a 401k pre tax will reduce your income as far as the phaseout is concerned. So you're safe for now. Isn't it modified adjusted gross income? Essentially AGI with most deductions added back.
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Nov 1, 2014 15:01
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Is it worthwhile to invest some money in regular dividend-paying REIT companies, like O?
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Nov 1, 2014 15:12
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Henrik Zetterberg posted:Isn't it modified adjusted gross income? Essentially AGI with most deductions added back. Yes. I'll edit my post. But the point still stands that pretax 401k contributions reduce income for the purposes of the Roth IRA phaseout and are not added back. nelson fucked around with this message at 15:21 on Nov 1, 2014 |
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Nov 1, 2014 15:17
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DrSunshine posted:Is it worthwhile to invest some money in regular dividend-paying REIT companies, like O? No, due to tax efficiency you want to avoid REIT type stocks but they work much better for tax free accounts for adding in bond like diversification w/ decent yields. It's mainly because REITs don't get the long term dividend tax break of 15%. The other interesting aspect of REITs is the unique return to capital tax mechanics:  Basically it allows you cost basis for you stock to go negative if you hold the stock for a long period of time. etalian fucked around with this message at 17:50 on Nov 1, 2014 |
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Nov 1, 2014 17:46
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etalian posted:No, due to tax efficiency you want to avoid REIT type stocks but they work much better for tax free accounts for adding So, by that logic, would it be a good idea to purchase some REITs through a Roth IRA?
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Nov 1, 2014 17:49
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DrSunshine posted:So, by that logic, would it be a good idea to purchase some REITs through a Roth IRA? Yes by tax efficient allocation theory REITs are ideal for 401k/IRA type tax free accounts since they offer fairly high yields and also add bond like stability to a account. I would avoid buying REIT individual stocks since they are lots of decent REITs ETFs out there like vanguards VNQ. etalian fucked around with this message at 03:15 on Nov 2, 2014 |
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Nov 1, 2014 17:53
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What are the penalties for breaking a fixed-rate fund in a 401k? You know, the ones that earn the same as checking accounts (0.10 APY) for keeping the money in there for 3-year terms? Is it like a CD where you gradually lose interest for every year you withdraw early? Or is there some greater penalty?
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Nov 2, 2014 16:26
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I've been lurking this thread (and the rest of SA!) for awhile but I still have a specific question regarding investing. I'm helping my wife, a California public school teacher, set up a retirement account to supplement her pension. For obvious reasons, we do not want to rely upon CalSTRS for her retirement. We also plan on moving out of state in the next five years anyways. In California, there is an open market system for 403b plans for teachers. Her district has a list of approved vendors, provides automatic pay reduction but does not do any sort of employer matching. The vast majority of these 403b options have monthly and/or annual fees (typically $3/mo plus about $20/year plus the funds' expense ratio) and many have limited fund selections or require an annuity. My top two choices, TIAA-CREF and Vanguard, would both be cheaper if we just opened an IRA directly. The only downside to an IRA I see is the lower annual contribution limit. Should she forego the fees and just open an IRA or is the higher contribution limit of a 403b worth the fees? As an air traffic controller, I am required to retire--or find a new job--at age 56, so I am doing my best to max out my TSP contributions already.
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Nov 2, 2014 18:01
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DeltaNui posted:I've been lurking this thread (and the rest of SA!) for awhile but I still have a specific question regarding investing. I'm helping my wife, a California public school teacher, set up a retirement account to supplement her pension. For obvious reasons, we do not want to rely upon CalSTRS for her retirement. We also plan on moving out of state in the next five years anyways. How much money is she looking to invest in total? If it's $5,500 or less, then it sounds like just doing the IRA would be best. But if it's more than that, you should probably invest $5,500 in the IRA and then dump the rest in the 403(b) since the tax advantages will more than offset the fees. Basically you're not facing an "either/or" situation. You are allowed to do both.
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Nov 2, 2014 18:45
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So how do people feel about robo-advisors like Wealthfront and Betterment? Seems like a sound concept using low cost investments and also tossing in features like tax loss harvest for high balance accounts. Seems like a overall sound concept, even though it depends on how well you do the risk assessment, aka most people overestimate their level of risk.
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Nov 2, 2014 20:16
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I guess you might have forgotten yourself but you've made a couple posts recommending them in the past. e.g., etalian posted:Wealthfront/Betterment are decent cheaper alternative to financial advisors who tend to charge 2% plus management fees and also wealthfront/Betterment automatically handle things such as I'm skeptical of them. Looking at Wealthfront specifically, 1) They go to the trouble of constructing an MPT optimal risk/return portfolio for you but use an arbitrary 10-point risk scale based on an extremely short questionnaire. You're also reliant on their ability to forecast asset class correlations and returns. 2) They don't have a working business model charging 25 bps on AUM. Put it this way, an AUM of $10 billion would give them a revenue of 25 million (lower in reality given the first $10K being fee-free). It's obvious that they're taking the start-up route of setting themselves up to be acquired. 3) They talk a lot about a potential annualized 1% tax alpha from tax-loss harvesting based on monte carlo simulations and backtesting from 2000-2013. The former's meaningless. The latter is disingenuous given that it covers 2 extreme market events which would juice tax alpha.
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Nov 2, 2014 22:30
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Betterment now has tax loss harvesting. I think you have to have $50k in there or something. I'm definitely considering switching over because I think the tax loss harvesting would offset the .25% fee. Right now I don't do any tax loss harvesting and I'm lovely about rebalancing on my own on a regular basis. Plus it would be nice to manage everything in one place. I dunno. Still on the fence but considering moving my retirement savings in there at the end of this year.
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Nov 2, 2014 22:39
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shrike82 posted:I'm skeptical of them. Question: I have a 401k from an old job and my own solo 401k for my self-employment income, both of which I max out. If I roll my work 401k over to Betterment, would I have to roll it into my own solo 401k? Or would that go against the max limit contributions to a solo 401k? I suppose I don't really get how rollovers work and I'll have to look into it more.
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Nov 2, 2014 22:42
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Am I missing something or are you talking about applying tax loss harvesting to tax-sheltered accounts. That doesn't work.
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Nov 2, 2014 22:48
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shrike82 posted:Am I missing something or are you talking about applying tax loss harvesting to tax-sheltered accounts. I'm assuming moana has more money than what is in her tax-sheltered accounts. I know that I'm thinking about putting our money with Betterment as well for the same reasons. The vast majority of our net worth is actually in taxable accounts.
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Nov 2, 2014 22:52
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yeah, I have some separate investment accounts as well that are taxable, that's about half of my invesments. Sorry for wording that in a confusing way. The tax loss harvesting on my taxable accounts would probably make up the difference in fees overall. I know it might be wiser by a pip to keep the 401ks out of it but I'd really like to have everything in one place to make life simple and on automatic.
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Nov 2, 2014 23:01
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Ok, that makes sense. It's helpful to be clear about your objectives if you're thinking of moving your money over - A) You're paying for the convenience of having someone re-balance your portfolio. B) You're hoping to juice your returns using MPT portfolio construction. C) You're hoping to juice your returns through tax alpha. Objective A is straightforward but if you're moving primarily because of B and/or C, just remember that the sample numbers provided by the providers are back-tests or simulations and not guarantees. This is a good read about overstating TLH gains http://www.kitces.com/blog/wealthfront-tax-loss-harvesting-white-paper-how-not-to-calculate-tax-alpha/
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Nov 2, 2014 23:08
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shrike82 posted:Objective A is straightforward but if you're moving primarily because of B and/or C, just remember that the sample numbers provided by the providers are back-tests or simulations and not guarantees. This link explains my concerns about letting someone else do tax loss harvesting for you a bit better than I was already typing, but the raising the basis issue has me queasy about the idea. It's hard to predict where LTCG rates will be at retirement age, but I personally see the political leanings of millenials making LTCG rates closer or equal to OI rates as they age to the point where they're actually showing up to vote. I also think OI rates in the top bracket will go up too. I also feel that the wash sale rule may expand and wouldn't trust Betterment to be on top of tax law.
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Nov 2, 2014 23:23
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shrike82 posted:It's helpful to be clear about your objectives if you're thinking of moving your money over - I really wish there was a roboadvisor that let you set your own allocations as well. I'd like to overweigh foreign and small cap and include REITs. I could do that outside of Betterment, I suppose, but that defeats the whole point of making things simple. ARGHGHGHGHHGHGHG
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Nov 2, 2014 23:46
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The way I do that is via quicken, and keep explicit monies spread exclusively in each account. Eg, bonds is in traditional 401k rolled into ira (that isn't getting contributed to anymore, and is okay since I want low bond exposure), REITS is in Roth IRA with international funds split as desired, wife's 401k has domestic YYYY, wife's roth has international ZZZ. I monitor via Quicken to see spreads, and allocate as necessary if one gets out of whack. It is a little difficult for the time being (as in, I don't have enough in each fund to had admiral funds for everything), but I fudge it enough to try and make it work with loose percentages. Quicken has done a decent enough job of monitoring the allocations, and I'll just have to change it as deemed necessary through each account (though, not much, yet). It helps I get decent funds via my 401k and can make up any shortfalls in any category there without any major added expense.
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Nov 2, 2014 23:58
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shrike82 posted:
On the flip side I imagine robo-advisors have a lot lower operating expenses and assuming it takes off even more in terms of stealing from traditional advisors it would more revenue in the future. Of course all those sites like Betterment always have news about getting more funding, so it's also spot on that they are still stuck in the burn money startup phase. The end game is going big enough to get noticed and then in standard fashion getting bought out by Wall Street for billions of dollars. In terms of overall experience I found Betterment to be noticeably better than Wealthfront. Mainly due to how IMO it has a much nicer user interface/software tools, does fractional share buys unlike Wealthfront, tax harvesting at a lower account balance and has a much faster investment/deposit moving process. For example with Wealthfront it has 4 day turn around time for deposits while Bettermant does the same process in one business day. Of course even with all the risk questionnaires used by Robo-advisor it makes sense to read a book like Four Pillars before setting up the account to pick up some practical tips. For example the important of going with at least 20% bond allocation for long term taxable accounts or the whole basic risk vs. reward tradeoff especially when more risky ETFs are concerned (emerging markets). etalian fucked around with this message at 01:49 on Nov 3, 2014 |
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Nov 3, 2014 00:04
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Cicero posted:Nobody from personal capital has called me and their emails seem to come in at a reasonable level. Maybe they just hate me? They called me this morning after signing up a few days ago. I still appreciate the portfolio breakdown from the site though. They also mentioned a minimum of $100k in assets, perhaps they'll only call those over a certain $$$ threshold?
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Nov 3, 2014 18:24
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moana posted:Thank you, that helps a lot and that article is very interesting. My primary reason was A, but I was hoping that B/C would make it a no-brainer. I've been trying to delegate/automate more things out, but now I'm back to waffling on this. Do you just handle all the rebalancing yourself? It was easy peasy back when I only had a Roth, now I have a Roth IRA, a rollover IRA, a SIMPLE IRA, a solo 401k, and a work 401k, not to mention all of my outside investments. It's getting to be too much for me to want to stay on top of =/ Like, Betterment does rebalancing by bands, which I should do, but it's just too much hassle to check every month. They check every DAY. Am I being stupid about this? You could wait a few months and use this free service when it launches : http://www.nytimes.com/2014/10/28/your-money/charles-schwab-to-offer-free-advisory-service-for-online-investments.html?_r=0&referrer=
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Nov 3, 2014 19:32
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Zero One posted:You could wait a few months and use this free service when it launches : http://www.nytimes.com/2014/10/28/your-money/charles-schwab-to-offer-free-advisory-service-for-online-investments.html?_r=0&referrer= Yeah if anything the end game for robo-advisors is getting eating up by existing bigger companies like Charles Schwab or Fidelity. Basically startups never really disrupt anything since they are always eager to cash for big bucks to pre-existing big companies.
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Nov 4, 2014 00:23
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Zero One posted:You could wait a few months and use this free service when it launches : http://www.nytimes.com/2014/10/28/your-money/charles-schwab-to-offer-free-advisory-service-for-online-investments.html?_r=0&referrer=
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Nov 4, 2014 00:39
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moana posted:Very cool to see. Thank you for the link! I always worry with a big company like Schwab... they must be sneaking fees in somewhere, right? RIGHT? Of course it will have the standard fees, main difference is offering brick and mortar type advising along with tax harvesting services. etalian fucked around with this message at 02:42 on Nov 4, 2014 |
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Nov 4, 2014 01:11
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moana posted:Very cool to see. Thank you for the link! I always worry with a big company like Schwab... they must be sneaking fees in somewhere, right? RIGHT? That article explains it. The advice and balancing are free while Schwab will earn money from the fund fees. Either funds they run themselves or other companies who do revenue sharing. That information is already public since they will be using existing funds. The Schwab ETFs have low fees: https://www.schwabetfs.com/ I imagine this is some sort of loss leader to eventually upsell people into their other managed services.
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Nov 4, 2014 05:09
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moana posted:Very cool to see. Thank you for the link! I always worry with a big company like Schwab... they must be sneaking fees in somewhere, right? RIGHT?
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Nov 4, 2014 06:25
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So I currently have an emergency fund sitting in a savings account that is earning something dismal, like 0.1%. What is the best way to go for funds that I expect to keep invested long-term but need to be reasonably liquid/not too much risk? Is there such a thing in tyool 2014 or is anything other than a savings account too volatile for this?
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Nov 4, 2014 19:40
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You're talking cross-purposes here. If you expect to invest long-term, you should be investing in equities and taking on risk. Having your money in safer places will end up with you shooting yourself in the foot long-term. Better to separate your money into "pile of money I would like to keep safe" and "pile of money I want to GROW" and put the first on in a savings acct and the second one in whatever your long-term allocation is.
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Nov 4, 2014 19:52
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There's ~1% high-yield savings accounts out there. I stuffed my e-fund in one through Synchrony Bank recently. I also put my house down payment savings in there, so it earns a decent amount of interest. Since it's an emergency fund, I wouldn't suggest anything more risky than a money market or high-yield savings account.
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Nov 4, 2014 19:52
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I keep everything in a ~1% savings account, but I have heard a few people recommend buying I-Bonds directly from the treasury as an option.
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Nov 4, 2014 20:28
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THF13 posted:I keep everything in a ~1% savings account, but I have heard a few people recommend buying I-Bonds directly from the treasury as an option. If this is for an emergency fund, look how long it takes to redeem. On top of that you forfeit the previous 3 months of interest if you redeem in less than 5 years. And you can only redeem after 1 year. May not be ideal for an emergency fund, good for house downpayment holding for a couple of years though.
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Nov 4, 2014 21:57
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Any thoughts on mutual funds Natural Resources like VMIAX? It looks like my new HSA custodian will provide access to that fund (at a hefty annual 0.4% administrative fee) and it seems like a decent option for diversification. It is still better than their normal funds, which average above 1%+ ERs.
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Nov 4, 2014 22:35
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Bloody Queef posted:If this is for an emergency fund, look how long it takes to redeem. On top of that you forfeit the previous 3 months of interest if you redeem in less than 5 years. And you can only redeem after 1 year. May not be ideal for an emergency fund, good for house downpayment holding for a couple of years though. Yeah, but I could ladder my purchases over a year or two to improve liquidity. Looks like the best rate I can get on a savings account right now is 0.9%, and I bonds are currently at 1.48%; seems like a decent option.
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Nov 4, 2014 23:12
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Mr. Glass posted:Yeah, but I could ladder my purchases over a year or two to improve liquidity. Looks like the best rate I can get on a savings account right now is 0.9%, and I bonds are currently at 1.48%; seems like a decent option. On I bonds the earlier you renew the lower the effective rate, remember they withhold the last 3 mos. of interest if cashed out under 5 years. Also that is a variable interest rate.
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Nov 4, 2014 23:41
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Henrik Zetterberg posted:There's ~1% high-yield savings accounts out there. I stuffed my e-fund in one through Synchrony Bank recently. I also put my house down payment savings in there, so it earns a decent amount of interest. Yeah for a real emergency fund you need something stable and liquid like a 1% yield savings account. For longer term goals like a house downpayment you can be somewhat risker by going with a bond heavy mix.
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Nov 5, 2014 00:48
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