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I was very happy when they announced late last year or the year before that our company's 401(k) offerings were changing and they were adding a few Vanguard funds. I was able to move 100% of my 401(k) to VINIX (institutional class index fund with 0.04% ER) and diversified my total portfolio by adjusting the mix of the rest of my Roth IRA and taxable accounts to compensate.
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Nov 28, 2014 19:15
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So I have a big need for some sound advice. I was let go from my longtime job at Nike (corporate) just two weeks ago and I need to decide what to do with my 401k. I had been putting 10% away for 6 years with 5% of that at 100% match from the company so I have almost 140k squirreled away at this point and the portion of it that was in Nike stock has been doing pretty well. I have the option to leave the funds in the Hewitt managed account or move them somewhere else. I'm a relative finance noob so I'm not sure if now would be a good time to move them into an IRA or another fund of some sort. I'm only 33 so I still have a lot of years before retirement so I don't mind doing something riskier in the hopes that my money works a little harder for me. Thanks in advance for any advice. MMD3 fucked around with this message at 22:27 on Nov 29, 2014 |
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Nov 29, 2014 22:21
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MMD3 posted:So I have a big need for some sound advice. Depends on your fund options and if they only offer high expensive ratio funds. Leaving it in a 401k does have some fringe benefits such as better bankruptcy protection or being able to take out your 410k at age 55 without penalty due to a IRS loophole. Of course it's easier sleeping at night if you roll it over to the IRA since it gives you more direct ownership of the retirement money. Basically when you have a change of work situation such as getting laid off or changing job, you are eligible to roll the money out of Nike's 401k program tax free. I would probably take it over to the good folks at Vanguard. Christ Pseudoscientist posted:I've always bought Schwab funds in my 401k because they have no trading costs as long as you don't sell within 30 days and generally are low fee. I decided to check to see how much it would cost to buy a Vanguard target fund and the commission for a purchase is $79. Are all brokerages that bad? Looking into the issue, it's mainly because they charge big fees if you try to buy mutual funds from their competition. Vanguard target funds are a mutual fund type security. A way around this is to just focus on ETFs since the cost per trade is only around $7-$10. It's basically another advantage of the ETF concept.
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Nov 29, 2014 22:38
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Roll it to a Vanguard IRA allocated across 4ish index funds. Domestic stock (could be split to small/mid/large cap, or a total market or Russell 3000 index), domestic bond, international stock, and international bond. Do this in indexes. And get the hell out of Nike stock - you don't want to hold single stocks. Read the 4 Pillars of Investing, too.
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Nov 30, 2014 00:01
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If you think you'll be making too much at your next job to contribute to a Roth IRA, consider leaving it in your Nike 401k or rolling it to your next employers 401k. If you roll it over to a traditional IRA now, the benefits of doing a back door Roth IRA will be greatly diminished. There's no rush in making a decision, I'd wait to see where you land next and what your income will be before making a decision.
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Nov 30, 2014 00:27
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Another quick graph showing the importance of picking broad ETFs like VTI: VTI- Total Stock Market, VOO= SP500 Index, VIG= Dividend Fund  Even though the SP500 fund tracks close with VTI, it still has lower performance in a bull market. It's mainly due to how a total stock market fund includes mid/small cap companies, which historically have higher returns with higher risk. However including them in a broad market ETF generally helps the long term performance of the fund vs. a simple large cap tracking ETF. You could also invest in small/mid cap ETFs as another approach but once again broad market funds like VTI are a good example of simple effective investing.
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Nov 30, 2014 07:21
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Forgive the noob question, but in that case, why would anyone want to pick VIG over VTI or VOO?
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Dec 1, 2014 15:51
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Well, past returns aren't necessarily indicative of future results. Also, if you look at VIG vs VTI since VIG's inception, they're almost equal, and VIG has a higher dividend on top of that:
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Dec 1, 2014 16:00
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The reason you would pick any one of those over the others is because they are three different portfolios with three different investment strategies and therefore three different risk/return profiles. Those graphs are useless, they are essentially a single data point from a massive pile. They don't prove anything about returns.
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Dec 1, 2014 17:11
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I actually purchased VIG when it was released. I think there are very good reasons for choosing it over the broad market. I recently did a regression analysis against Fama and French's data for the Dividend Achiever's index that VIG tracks. It has a beta of 0.85, which shows it is less volatile than the broad market. This can be shown on the graph that Saint Fu posted, which shows a smaller drawdown during the 2008 crisis as well as less upside volatility during the recovery. Also, it has a positive factor loading on Fama and French's profitability factor. (I also did a separate regression analysis awhile back to analyze this and other funds) Currently FF and some of the quant shops are optimizing portfolios based on defensive/low-beta stocks which have historically exhibited better risk-adjusted return than the broad market... essentially the same returns for slightly less volatility. VIG is an imperfect methodology to access this factor, but it is one of the best available for retail investors. Saint Fu shows that since inception, VIG has had the same performance as VTI with less volatility. The defensive/profitability factor appears to be working. How you integrate VIG into the rest of the portfolio allows you to get the size and value factors you need, while possibly getting slightly more optimized portfolio construction with a defensive/profitability loading. You can also use something like MTUM to improve the overall loading to momentum. Plenty of ways to construct a portfolio, and comparing two graphs does not always mean the higher performing one is better. It is how it is used that matters. edit: Saint Fu mentioned that VIG has a higher dividend... actually it is about the same as the broad market. Dividend Achievers does not track high dividends, but rather stable and growing dividends... a metric of quality. Over its lifespan, the index has had slightly lower dividend yield than the broad market. 80k fucked around with this message at 19:28 on Dec 1, 2014 |
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Dec 1, 2014 19:23
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80k posted:edit: Saint Fu mentioned that VIG has a higher dividend... actually it is about the same as the broad market. Dividend Achievers does not track high dividends, but rather stable and growing dividends... a metric of quality. Over its lifespan, the index has had slightly lower dividend yield than the broad market.
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Dec 1, 2014 20:29
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Saint Fu posted:Huh, I was just looking at the Vanguard fund summaries, VIG lists 2.01% and VTI is 1.82%, didn't realize it historically had lower dividends. That seems odd that a fund tracking stocks with stable, growing dividends would have a lower yield than the broader market. Yea, it only recently started having a higher yield. It used to be a tad less. High yield stocks typically have value characteristics, whereas stable/growing dividends often have lower overall yield.
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Dec 1, 2014 20:46
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80k posted:Yea, it only recently started having a higher yield. It used to be a tad less. High yield stocks typically have value characteristics, whereas stable/growing dividends often have lower overall yield. Yeah and if anything non-mega yield chasing Dividend ETFs are basically just a collection of well known "boring" large cap companies like GE, Coca Cola or Exxon.  Larger time scale comparison of VIG vs VTI  Over a long time I expect broad market ETFs to have much better performance against dividend ETFs(VIG) and simple large Cap ETFs(VOO) since once again you get the effect of including higher risk vs reward mid/small cap companies. It's also why eggheads like William Bernstein recommend broad stock market ETFs that track things like the Russell 3000 index vs going with a simple S&P 500 etf. On a more random for simplifying IRA accounts I wonder if makes sense to just go with all world ETF like VT. I guess you would give up fine tuning but on the flip side it's basically making investment even simpler. etalian fucked around with this message at 00:28 on Dec 2, 2014 |
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Dec 2, 2014 00:18
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Stop posting graphs unless you are going to take the time to do it right. The longer time series arbitrarily starts at 0 for VIG in 2006, while VOO and VTI starts at a higher level since it had gained since 2001. edit: Also Bernstein doesn't recommend VTI nearly as often as he has recommended a large cap index (like S&P500 or large cap index) paired with a small cap value fund. If you want any substantial small cap exposure, you need to tilt away from VTI, and in that case, it doesn't matter whether you use VTI or VOO... what matters is how you adjust your entire portfolio to get the loading you want. Another reason why these graphs are not useful, even if they were done right. 80k fucked around with this message at 00:44 on Dec 2, 2014 |
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Dec 2, 2014 00:28
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What about just using a global etf to take simple investing to it's logical conclusion? I guess it's less safe since you don't slice allocation out by asset class but on the flip side has a inherently smaller contribution from high risk-reward allocation like emerging markets. For example in Vanguard VT global ETF emerging markets make up just 9% of total allocation, with the rest being split between larger US/developed world markets.
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Dec 2, 2014 02:00
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etalian posted:What about just using a global etf to take simple investing to it's logical conclusion? Passive investing can be done starting from a global cap weight all the way to a heavily factor-tilted portfolio. VT would be a logical starting point, imo, which is roughly 50/50 domestic/international. Any deviation from it can be justified based on whether you want home country bias and any loading to size and value factor loadings. The other side of the passive investing spectrum would be DFA funds (or similar factor exposure from a variety of ETF providers). My opinion is that for early investors who are just getting started, just getting some cap weighted exposure (VTI and VEU split 50/50 or just use VT... and mix with bonds) is fine and any deviation won't make much difference until your assets grow. Bernstein often recommends size and value tilts as it allows diversification of risk factors. Also, I think he has something like a 25 million minimum to be his client, so capital preservation is very high on his mind. Diversification across risk factors, while reducing equity allocation, should reduce drawdown/dispersion of returns while keeping a similar overall expected return, which is generally desirable for people, but especially for those whose financial wealth exceeds their human capital. (Larry Swedroe is the biggest proponent of this highly tilted, lower equity strategy). My very personal belief is that along with Vanguard, the Powershares RAFI, Ishares, and Wisdomtree ETF's should be considered by those who are familiar with the academic papers behind factor-based investing. The most extreme method would be to concentrate your equity allocation to PXSV, PXF, VSS (and/or DLS), and PXH, which is riskier than the global cap-weighted market... so you would want to substantially increase your bond allocation. And then rebalance religiously. Bernstein, in one of his latest ebooks, has a high opinion of the Powershares RAFI products. Bernstein is a self-professed asset class junkie... the more you read his writings and interviews (outside his more general advice for the general public), the more you will see that he is really big on portfolio optimization. I doubt he uses a cap-weighted broad market equity portfolio for any of his clients.
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Dec 2, 2014 02:57
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At least for do it yourself IRA it does seem like a good case of simple stupid investing instead of worrying about allocation for different markets. You could go with a global ETF, then just add some REITs, tiny helping of commodities and mixed bond types for stability/inflation hedging. On the flip side there's a good reason why robo-advisors prefer the slice and dice approach to investing since it allows more fine tuning towards the desired level of risk.
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Dec 2, 2014 03:12
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I have a few thousand in a taxable Vanguard fund (VTSMX) that I want to liquidate and use as part of my 2015 Roth IRA contribution. I'm not too concerned about the tax implications, but if I want the taxes to hit me this year, I will have to sell it before Dec. 31, 2014 and then buy shares of whatever I want for my IRA in 2015, right?
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Dec 2, 2014 11:05
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Gold and a Pager posted:I have a few thousand in a taxable Vanguard fund (VTSMX) that I want to liquidate and use as part of my 2015 Roth IRA contribution. I'm not too concerned about the tax implications, but if I want the taxes to hit me this year, I will have to sell it before Dec. 31, 2014 and then buy shares of whatever I want for my IRA in 2015, right? You need to sell in 2014 for it to hit your 2014 return. But beware of selliing and buying it in your Roth within 30 days of each other, if you have a loss.
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Dec 2, 2014 12:51
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I'm looking at moving from a job with a 401k employer match plan to a state retirement system with a mandatory 9% (gross) employee contribution that accrues at 3.5%. Once vested (8 years), it's a defined benefit for life. I'm 34 years old and could start drawing it at age 60. If I end up leaving this new job before I'm vested I could roll the employee contributions + interest into a 401k or a similar plan. I've been contributing 6% to the 401k to get the full 3% employer match. I had been maxing out my Roth IRA for a the past few years, but this year I'm only putting about $2k in because I'm bad with money. Considering the mandatory 9% contribution, is the proper move going forward to leave the 401k in place and max out my Roth?
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Dec 2, 2014 15:55
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Easychair Bootson posted:I'm looking at moving from a job with a 401k employer match plan to a state retirement system with a mandatory 9% (gross) employee contribution that accrues at 3.5%. Once vested (8 years), it's a defined benefit for life. I'm 34 years old and could start drawing it at age 60. If I end up leaving this new job before I'm vested I could roll the employee contributions + interest into a 401k or a similar plan. Most people don't count pension as retirement, so make sure you keep putting 15%+ of gross away. The state may greatly change the pension plan by the time you retire.
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Dec 2, 2014 16:06
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SiGmA_X posted:Most people don't count pension as retirement, so make sure you keep putting 15%+ of gross away. The state may greatly change the pension plan by the time you retire.
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Dec 2, 2014 16:25
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Easychair Bootson posted:So according to that guideline if I'm doing it with post-tax money on a gross income of $100k do I need to be socking away $15,000/yr or $10,500/yr (assuming eff. tax rate of 30%)? I think it's the latter if I understand you correctly. In your state pension plan, is the 9% yours no matter what? It sounds like it is, and if so, count that as part of your 15%. Add the max Roth IRA contribution in and you're at 15%. Do you get to select funds in your state pension for your contributions? Or it just grows at 3.5%? If the growth is so small, you *may* need to save more than 15% total.
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Dec 2, 2014 16:45
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I'm a total investment noob - I've asked a couple of questions before, but haven't been in a situation to actually do anything. Until now: My wife finally found a job which, when combined with my income, will net us about $72K per year. Our current expenses are the primary mortgage, student loan, utilities (Northeast US, so loving expensive,) and gas, along with the various sundries. We received a life insurance payout which will take care of our second mortgage (80/20) and car loan, freeing up about $900 per month. Her employer offers a 401(k) with a contribution of 100% of the first 4%, and 50% of the next 2% - would I be wrong to take that "free" $900 as a percentage out of her check to contribute to the 401(k)? It is about the equivalent of a 25% contribution. It won't hit the max yearly limit, but I want to 1) get started as soon as possible; and 2) make sure the finances are ok before I start dumping money into investments. One of my goals is to get out from under that student loan that's been following us around since she graduated. In the OP, it states to contribute to the 401(k) up to employer contribution, max out the Roth, then return to the 401(k). I really don't understand why this would be the case - could someone explain this to me? What advantage does the Roth have over the 401(k)? Also, I've gone through some of the links listed in the OP, and I'm having a hard time picking up the basics here - I'm not dumb, but a lot of them seem to be geared toward people who already have an understanding of investing. I know next to nothing, other than compound interest is a good thing and that I should have started this a long time ago... EDIT: I'm 42, she's 46, so age and time is definitely a factor here. And the 401(k) contributions are after tax, also. berzerkmonkey fucked around with this message at 17:50 on Dec 2, 2014 |
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Dec 2, 2014 17:36
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SiGmA_X posted:I would say 15k. It comes down to how much money you want in retirement really.
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Dec 2, 2014 17:49
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berzerkmonkey posted:I'm a total investment noob - I've asked a couple of questions before, but haven't been in a situation to actually do anything. Until now: You should always take advantage of the employer match, because it's free money. The OP advises this as the top priority because it's effectively a 100% gain (or for the second part of your wife's match, a 50% gain) on your investment every year, and that's a phenomenal return that outmatches literally any other investment you could hope to make, ever. However, 401(k) plans have limited options for investment. A self-directed IRA, such as a Roth or Traditional IRA, allows you to (effectively) pick any funds you want, because you can pick where you want to invest. We recommend Vanguard here because they offer very high quality low-cost index/passive fund options. So the second priority is the IRA because of the high likelihood that your IRA fund options are superior to the fund options in your wife's 401(k). This is not always the case, though, so for advice specific to you, find out the details of your wife's plan - the funds available, the expense ratios on those funds, and any additional costs (fees, etc.) associated with using them. If she has access to very low cost index funds (such as the aforementioned Vanguard funds, or perhaps similar funds from Fidelity), you could just stick to the 401(k) for as much as you can afford to put into it, up to the annual maximum. The reason we say to go back to the 401(k) after maxxing out your IRA is due to the (relatively) low limit on how much you can put into your IRA each year. As a married couple, this is a total of $11k/year. If you can afford to do the matching on your wife's plan, and then max out the IRA, and still have more money to invest, you go back to the 401(k) (regardless of fund quality) because even if the funds suck, it's still (almost) your only remaining option for tax-advantaged retirement savings. The tax savings are usually going to make poor funds in a 401(k) beat good funds in a non-tax-sheltered account. There is one more thing to consider, which is a HSA. If you have access to one, it may be advantageous to put money into it before going back to the 401(k) beyond its matching, if the HSA works out as a better option than the 401(k) in terms of quality, fees, performance, etc. We can help you figure that out. So the takeaway is, we rank your retirement savings options according first to the huge "free money" return of employer-matched 401(k), and then the lowest-cost self-directed IRA, and then additional money just goes to whatever tax-sheltered option is best, up to the total annual maximums under law. If you have enough money to save to max out all of those options and still have more to save, first, congratulations, you're probably wealthy! And at that point we start talking about non-tax-advantaged investing options, and how to balance a portfolio that mixes tax sheltered and non-tax-sheltered investments to minimize your taxes.
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Dec 2, 2014 18:03
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berzerkmonkey posted:In the OP, it states to contribute to the 401(k) up to employer contribution, max out the Roth, then return to the 401(k). I really don't understand why this would be the case - could someone explain this to me? What advantage does the Roth have over the 401(k)? Shifting to the Roth IRA next is good because Roth IRAs are very flexible. You can invest with a low cost custodian and pick and choose what you want to invest in (or just stick it in a target retirement fund and be good). The beauty of the Roth IRA is that your future withdrawals will be completely tax free. No taxes on the withdrawals or the gains, nothing. There are other benefits such as being able to withdraw your contributions at any time without penalty (even before the standard retirement age). This is good in case of emergency. You could potentially withdraw from your 401k before retirement age but you'd get hit with both taxes and penalties from the IRS, usually only a last resort. Finally there are no required distributions from Roth IRAs. This is good if you plan on having a bunch of extra money left over for heirs (sounds like it probably isn't the case here, no offense). If you have extra left over after #1 and #2, it is better to put it in tax advantaged accounts over normal, taxable accounts and usually the only option aside from your IRA is your 401k. The fees in the 401k funds might not be as low as those in the IRA (it'll depend on your wife's employer), but the tax advantage is worth the extra fees. You said that "the 401(k) contributions are after tax", do you mean they will be in a Roth 401k? Or will be an "after tax" 401k? The former is far better than the latter. Actually after-tax 401ks are pretty rare so I doubt that is what it is. e:beaten spf3million fucked around with this message at 18:06 on Dec 2, 2014 |
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Dec 2, 2014 18:04
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Saint Fu posted:You said that "the 401(k) contributions are after tax", do you mean they will be in a Roth 401k? Or will be an "after tax" 401k? The former is far better than the latter. Actually after-tax 401ks are pretty rare so I doubt that is what it is. I'll read your posts in detail and respond in a bit , Saint Fu and Leperflesh - I've got to run out on a call right now.
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Dec 2, 2014 19:27
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berzerkmonkey posted:It is definitely after tax - I've got three options: Before-Tax; Roth; After-Tax. If you are making $72k per year as a couple, you are likely in the 15% tax bracket which is relatively low. This makes the Roth 401k look like the better option initially. You might be planning on retiring on less than what you're making now (remember retirement income includes any pensions, social security, and non-Roth account withdrawals), in which case, you might be in a lower tax bracket in retirement. If you're going to be in a lower tax bracket in retirement, then the before-tax 401k would be better.
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Dec 2, 2014 19:42
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Something to keep in mind about IRA generally being the smart move after the 401k match - there are rare occasions where a 401k will be a really great plan with even smaller expense ratios than you can get in an IRA. In these cases it's better to max the 401k out first before the IRA. But this is extremely rare; most 401k plans are pretty bad and the portion that isn't matched will perform significantly worse than an IRA due to expenses.
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Dec 2, 2014 19:55
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In my opinion, the flexibility of a Roth IRA outweighs the potential reduction in fees of a great 401k.
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Dec 2, 2014 20:02
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Easychair Bootson posted:The 9% plus accrued interest is mine if I take it as a refund. I'd need to roll it into an eligible plan to avoid taxes/penalties. So if I stay in the system for less than 8 years I can cash out and put that money into another retirement plan and I'm only out the difference between its growth at 3.5% and the growth that I could have seen elsewhere. The 3.5% figure is determined by the plan administrators, so that's obviously not set in stone. Can you opt out of the employer plan? Are you married? If so, use your spouses 401k and IRA for your investing, too. The goal is usually 15% of gross household income, you may want to do 20% of your income and 15% of your spouse. Your spouse will have a smaller take home check, but who cares, it's all one pile of money. berzerkmonkey posted:It is definitely after tax - I've got three options: Before-Tax; Roth; After-Tax. Saint Fu posted:In my opinion, the flexibility of a Roth IRA outweighs the potential reduction in fees of a great 401k.
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Dec 2, 2014 21:26
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Or if you're in a higher tax bracket... 401k (to match) > 401k = HSA (whichever has better investment options) > Roth > taxable
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Dec 2, 2014 21:30
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Saint Fu posted:If you are making $72k per year as a couple, you are likely in the 15% tax bracket which is relatively low. Well, I'm glad I asked, because I didn't think about paying the higher tax now versus the (hopefully) lower tax when I retire. So, based on the advice you guys have offered: 1) 401(k) - 6% before tax (to take advantage of the employer match) 2) Roth IRA - Can we do $11K in one account or would we have to do two Roths? Also, I have a retirement with my employer - does this affect things with a Roth? 3) 401(k) - Invest whatever I have leftover from 1 & 2, up to the max Does that sound about right? Or did I miss something? Also, Fidelity handles all the investments, and the fees (if I'm reading it correctly) are $.84 per $1000. I can't find a penalty fee for being under a certain amount though... EDIT: "No additional fees apply" so I assume there is nothing beyond the $.84 per $1k. berzerkmonkey fucked around with this message at 21:35 on Dec 2, 2014 |
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Dec 2, 2014 21:32
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berzerkmonkey posted:That's the net - gross is $120k. But yeah, it looks like 15% is correct. 2) 2 IRA's are needed. Open them both at Vanguard, one in each of your names. 3) Yep! If you want allocation help, post up your 401k fund options and expense ratios (each fund will have its own, plus the overall fee perhaps) and BFC can give some good input. SiGmA_X fucked around with this message at 22:27 on Dec 2, 2014 |
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Dec 2, 2014 21:43
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berzerkmonkey posted:That's the net - gross is $120k. But yeah, it looks like 15% is correct. Regarding fees, you'll want to look up the expense ratios of the funds available in your 401k. Anything less then around 0.3% is fantastic, anything over 1% is horrible. Your options will probably fall somewhere in between. I'm guessing that the 0.084% fee is in addition to the expense ratios but not sure. That wouldn't be very unusual for the 401k management company to levy a small administrative fee.
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Dec 2, 2014 21:45
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Saint Fu posted:Some brokers allow you to access your spouses account when logged into yours but I don't think Vanguard has this option. It's not a big deal, just a small inconvenience. I do this on Vanguard with my spouse's account. You have to set it up, which requires the spouse to log in their account and confirm it, but after that you will have whatever authority they consented to.
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Dec 2, 2014 22:28
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SiGmA_X posted:You probably should save more than 15% total. Inflation is 2.5~3.5%, so you're not making gains on that 9%, but it's not losing money. I would say max your Roth IRA and then start doing taxable investments, maybe shoot for a total of 20% gross between the 9% work pension and your other retirement investments. That said, an investment growth calculation could help you see what you need to be saving to hit your required retirement income. I am married, but my wife is part of the same state system. Her situation is much better, though: She started work at age 22 making (and therefore contributing) peanuts. If she stays put, when she's 47 she'll be eligible to retire and start receiving benefits of 50% of her pay (average of 4 highest years) for life, plus an ongoing cost of living adjustment. If she works until age 52 that goes up to 60%. The way to really game the system would be to work for a University, slowly earn a PhD with free tuition while making a decent living in a non-demanding job for 20 years, then use that PhD to land a well-paying job to get your compensation level up for 4 years. Take a job elsewhere at age 52 and enjoy your 60% * $150,000 annual benefit (plus COLA) for life.
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Dec 2, 2014 22:48
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HSA also makes sense if you have/will have soon medical expenses, even with terrible investment options, as the money is not taxed (at all) when used for medical expenses.
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Dec 2, 2014 23:39
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flowinprose posted:I do this on Vanguard with my spouse's account.
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Dec 3, 2014 00:14
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