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mrmcd posted:So, unless you're expecting an economic/market catastrophe, or a drastic changes in the tax code, there's pretty much no reason to not go with a Roth versus a traditional 401k/IRA account if you can afford it and aren't going to retire for 25+ years, correct? The error with this logic is that if you invest $15000 in a traditional IRA, you have an additional $5250 extra to invest that year that would otherwise have to be paid as tax. Which using your numbers turns into $35000 over time. Ultimately if you do the math using a spreadsheet, a roth contribution is exactly equal to a traditional contribution if the tax deducted rate (in) is equal to the taxed rate (out). One big benefit of a roth IRA is that it effectively lets you contribute "more" because you are contributing post-tax money. At 35%, I probably would stick with a traditional contribution though. Droo fucked around with this message at 21:56 on May 22, 2015 |
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May 22, 2015 21:52
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Droo posted:Ultimately if you do the math using a spreadsheet, a roth contribution is exactly equal to a traditional contribution if the tax deducted rate (in) is equal to the taxed rate (out). One big benefit of a roth IRA is that it effectively lets you contribute "more" because you are contributing post-tax money. These two statements appear to contradict each other. The first one can be shown to be true with basic math, so I have to ask what you mean by "contribute "more" because you are contributing post-tax money"?
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May 22, 2015 22:07
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MickeyFinn posted:These two statements appear to contradict each other. The first one can be shown to be true with basic math, so I have to ask what you mean by "contribute "more" because you are contributing post-tax money"? If your marginal total tax rate is 35%, then a $5500 contribution to a roth IRA is equivalent to a $7425 contribution to a traditional IRA because taxes. Since you can't actually contribute $7425 because it's over the limit, the $5500 roth contribution allows you to shelter "more" money in a tax deferred vehicle.
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May 22, 2015 22:12
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I'll take tax deferred contributions now, have more money in my pocket now and worry about how to dodge the tax man in 25 years with the laws in place at that time. My crystal ball sucks and people have been dodging taxes since there have been taxes, I'm sure there will be clever accountants in the future. Besides having to pay exorbitant taxes on my massive withdrawals probably indicates that I could care less about the taxes anyway.
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May 22, 2015 22:22
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Murgos posted:I'll take tax deferred contributions now, have more money in my pocket now and worry about how to dodge the tax man in 25 years with the laws in place at that time. I like tax deferred accounts better because I have a high tax rate now, and I have about 40 chances (years) to be in a much lower tax bracket than I am today. If at any point in the next 40 years I decide to take a year off, or lose my job and am unable to find a new one, or take a year to volunteer for a political campaign or something like that, then I can convert my traditional IRA to a roth IRA that year and pay a lower rate than I would have paid this year to make an identical roth contribution. With that said, the extra tax-deferred value of a roth contribution is pretty compelling and I wouldn't fault anyone for using a roth instead.
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May 22, 2015 22:35
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Murgos posted:I'll take tax deferred contributions now, have more money in my pocket now and worry about how to dodge the tax man in 25 years with the laws in place at that time. However, my roth is in a 401(k) and I get a company match in a traditional. So, hooray diversification!
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May 22, 2015 23:00
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Is there an easy way to compare total returns between vanguard ETFs and mutual funds? it seems like the vanguard sector specific funds do worse than comparable ETFs, but that can't be, can it? I'm just graphing them on google finance which may not account for dividends, i guess? Edit: ok, using morningstar.com I can compare VDE and VGENX http://performance.morningstar.com/funds/etf/total-returns.action?t=VDE®ion=USA&culture=en_US It seems like VDE is doing slightly better than vgenx...maybe. I'm not entirely sure because the graphs show NAV and not market price, which should be close bu 
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May 23, 2015 01:58
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Wrong comparison - it's VDE and VENAX that are the same. The important difference between VENAX and VGENX is not the price history, but the portfolio and management.
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May 23, 2015 02:39
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Morningstar will by default graph growth of 10k if you start with a mutual fund and compare against it. If you start with a stock, or etf, you get price. You almost always want growth of 10k because that shows total return. Price is useful sometimes but doesn't tell the whole story.
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May 23, 2015 02:48
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If there is such a thing, whats the safest numerical interest rate, or interest earning investment type, above the security of a savings account ? Is a 4 percent total market index fund relatively risk free, does a safe 4 percent investment vehicle exist ? And is an index fund not as risk free as other types of investment? TLDR; how can I get 4 percent every year without much risk.
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May 24, 2015 14:05
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LolitaSama posted:If there is such a thing, whats the safest numerical interest rate, or interest earning investment type, above the security of a savings account ? Is a 4 percent total market index fund relatively risk free, does a safe 4 percent investment vehicle exist ? And is an index fund not as risk free as other types of investment? TLDR; how can I get 4 percent every year without much risk. If you believe the market will always go up over time, then a 4% total return of the market as a whole is a reasonably safe assumption, but it will likely fluctuate wildly in the short-medium term.
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May 24, 2015 14:33
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Come on, this subprime MBS tranche is AAA rated by every ratings agency and returns 8% a year totally risk free! I can put you down for at least a couple million right? If you really, really want absolutely zero risk buy TIPS or something. At least then you won't be losing money to inflation having it sit in a deposit account.
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May 24, 2015 15:31
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The canonical risk-free asset is 3-month treasuries, which currently gives you a whopping 0.02%!
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May 24, 2015 16:12
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Saint Fu posted:Sorry but no. The best you can do is a 5 year CD which returns a little over 2% right now. Anything above that will carry risk. Generally the higher return, the higher the risk. US 30 year treasuries are about 3% and are generally considered "risk-free" but that's only if you hold them for the whole 30 years. Their value may go up or down in the meantime. An index fund with a 4% yield will definitely not be risk-free. It could lose 50% of it's value or more in a few months. If I buy a CD , I have to wait the entire 5 years before withdrawing? Same thing for the treasury or if the treasury has served me nicely over 2-3 years since I bought it, can I cash out with the interest rate gains and the principal?
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May 24, 2015 17:07
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LolitaSama posted:If I buy a CD , I have to wait the entire 5 years before withdrawing? Same thing for the treasury or if the treasury has served me nicely over 2-3 years since I bought it, can I cash out with the interest rate gains and the principal? Bonds are bought and sold on the market so if you buy a bond at say 3% yield, then yields go down to say 2.5%, your 3% bond is now worth more than it was before because people will be willing to pay more for a 3% yield. This is an over-simplification, but to answer your question, yes you can sell your bond and keep the interest you had earned prior to selling. Your gains would be taxed at your normal tax rate unless the bond is held in a tax-sheltered account (IRA for example). If yields on the 30 year treasury go up, your 3% bond would trade at a lower value because why would someone want a 3% bond when a 3.5% bond is available with identical risk? Keep in mind that bond yields are at historic lows, no one knows what's going to happen in the future but a lot of people think that yields will go up before they go down.
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May 24, 2015 17:26
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Are these bonds from the government, like the treasury notes? Both bonds and treasury notes mature, but after a set period of time, the government has to buy back my t-note, but my bond might be illiquid at some point?
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May 24, 2015 23:42
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Droo posted:I like tax deferred accounts better because I have a high tax rate now, and I have about 40 chances (years) to be in a much lower tax bracket than I am today. If at any point in the next 40 years I decide to take a year off, or lose my job and am unable to find a new one, or take a year to volunteer for a political campaign or something like that, then I can convert my traditional IRA to a roth IRA that year and pay a lower rate than I would have paid this year to make an identical roth contribution. I go with a traditional 401k and a Roth IRA. Not knowing whether I want to go for an early retirement where I'll have less income or a late one where I'll have more I hedge a bit both ways. My job is stable and I expect my income to increase over time so I go for the Roth IRA now rather than later through conversions. The Roth IRA also lets you withdraw contributions, but not earnings, at any time which could be a consideration for someone with an unstable job. I also manage to fit in some regular taxed investments so my situation allows me a fair bit of flexibility.
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May 25, 2015 00:50
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Honestly, I'm no expert on buying/selling actual bonds/treasuries. Someone else might be able to explain it better than me. But as far as I understand it, depending on the type of bond you purchase, there will be varying levels of liquidity (just like stocks or other securities). A treasury is a government-issued bond. If you hold a treasury until maturity and the government doesn't default, you will get your principle back along with the interest you accumulated along the way. I believe 30 year treasury notes pay dividends on a semi-annual basis. So if you buy a 30 year treasury with a face value of $1000 and a yield of 3%, you'd get $15 twice per year and then $1,000 back after 30 years. The same can be said for bonds issued by companies. They have a higher risk of defaulting before maturity so the yield they offer is typically higher than US government debt. Again, someone, please correct me if I'm wrong about any of the above. Most people don't buy individual bonds but instead buy shares of funds which buy pools of bonds with varying maturities on a rotating basis. As some of the pool of bonds mature, the fund purchases new bonds with the returned principle. As the various bonds kick off dividends, the fund either pays out dividends to the fund holders or it just buys more bonds thereby hopefully increasing the value of the shares of the fund.
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May 25, 2015 00:59
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Individual bonds can also run into the classic liquidity problem if you buy a bond, something bad happens and suddenly you have a niche bond you can't sell to someone. This thread recommends buying bond etfs instead of individual bonds since common ETFs like BND are well diversified and also have good liquidity.
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May 25, 2015 02:47
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Am I right in my thinking that unlike a government or company issued bond,with the etf bond I get the benefit of being able to take interest earned and put it back into the interest gaining principal, something I don't think you could do when buying actual, individual bonds? Does the ETF actually buy bonds on your behalf, or do they own the bonds, and you own a stake in their ownership of the bonds, meaning instead of investing in a company that buys you bonds, you are buying shares of their total value of their bond holdings , as is the case in the ETF? Also, if my understanding of ets are correct, could the company of the bond etfs also default, just as the company issued bonds they are holding could? LolitaSama fucked around with this message at 15:12 on May 26, 2015 |
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May 26, 2015 15:03
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Any opinions on Pimco Total Return these days? It's been hemorrhaging cash since Bill Gross flew the coop with no real signs of abating but performance has slowly been returning. I have a pretty substantial stake in it via my 401k, largely due to lack of a lot of better options. I'll probably rebalance a bit because I'm heavier into bonds than I might like but I can't really think of any real reason to totally divest myself of it.
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May 26, 2015 15:52
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LolitaSama posted:Also, if my understanding of ets are correct, could the company of the bond etfs also default, just as the company issued bonds they are holding could? Could the etf holding company default? I'm not sure since I don't think they are obligated to make dividend payments or buy back your shares. In the case of Vanguards mutual funds (of which their ETFs are a share class, I think is how it's structured?) each fund is it's own company and is independent of all the other Vanguard funds and so performs based on it's own assets and liabilities and can sink or swim entirely on it's own.
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May 26, 2015 16:36
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LolitaSama posted:Am I right in my thinking that unlike a government or company issued bond,with the etf bond I get the benefit of being able to take interest earned and put it back into the interest gaining principal, something I don't think you could do when buying actual, individual bonds? Does the ETF actually buy bonds on your behalf, or do they own the bonds, and you own a stake in their ownership of the bonds, meaning instead of investing in a company that buys you bonds, you are buying shares of their total value of their bond holdings , as is the case in the ETF? The short answer is that ETFs are (usually) similar to mutual funds but with a bunch of legal paperwork setup so that shares trade and clear similar to regular equity securities rather than being priced once a day and issued or redeemed at an individual investor level. Theoretically this means that the ETF security can have a different price than the net asset value (NAV) per share, but this usually doesn't happen more than a small amount, because any good ETF is going to have a market maker requesting or issuing share blocks to keep the market price about the same. The main thing to watch put for is that since ETFs got really huge, there have been a tremendous amount of dogshit ETFs that implement terrible, speculative, and very risky investment strategies that are totally inappropriate for retail investors and retirement accounts. So long as you stay away from anything involving commodities, inverse ETFs, leveraged ETFs, or bitcoin, you should be OK. OK as in "not a totally stupid idea", you could still lose money if the ETF makes bad investments.
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May 26, 2015 17:09
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Roth v Trad: Assuming you take steady distributions of income... I.e. In retirement you comfortably live off of 60k/yr. Note: this requires a monster retirement portfolio to be sustainable (like $1.5m) ...and that current-day tax assumptions are applicable to the future... Then traditional will outperform Roth in both current-day income (tax deductible) and future-state income (withdrawing the money at a lower tax bracket then it would have been paid in if it was Roth). That last bit is because any money contributed to a Roth is paid out of your highest marginal tax bracket and money taken out of traditional is taxed across all brackets. Now, if you plan on taking large sums out in blocs (like 200k one year) then that whole tax poo poo goes out the window and you better be pulling it from Roth. But for general income and living expenses, traditional is the winner. e: this is for most people. Reading this thread probably contains a higher amount of the complementary set (not most people...) a most person: Doesn't have enough income to max tax-advantaged space (IRA and 401k, ~22.5k) Doesn't have taxable investments Plans on living off of steady income in retirement Doesn't have significant sources of taxable income in retirement (consulting, etc) If you're not a most person, Roth can be advantageous for other reasons. DNK fucked around with this message at 20:05 on May 26, 2015 |
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May 26, 2015 19:41
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mrmcd posted:OK as in "not a totally stupid idea", you could still lose money if the ETF makes bad investments. Yeah it's why this thread recommends broad market investment trackers which have low expense ratios and also good liquidity. The popularity of ETFs has led to lots of fools gold type of investments. DNK posted:If you're not a most person, Roth can be advantageous for other reasons. It's also important to note the only selling point of the traditional IRA is the tax deduction now but pay tax on distribution . Most moderate to high income earners will get no IRA tax deduction or only a partial tax deduction. etalian fucked around with this message at 00:56 on May 27, 2015 |
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May 27, 2015 00:53
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etalian posted:Yeah it's why this thread recommends broad market investment trackers which have low expense ratios and also good liquidity. Come on dude! This 4X inverse Nasdaq futures ETF is totally a good place to put all my retirement money!
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May 27, 2015 02:02
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Barry posted:Any opinions on Pimco Total Return these days? It's been hemorrhaging cash since Bill Gross flew the coop with no real signs of abating but performance has slowly been returning. I have a pretty substantial stake in it via my 401k, largely due to lack of a lot of better options. I'll probably rebalance a bit because I'm heavier into bonds than I might like but I can't really think of any real reason to totally divest myself of it. I had it in my 401k for a while but swapped it for a target date fund with a lot of bonds that had a very low ER. Its a fine fund but considering how low yields are right now the ER on an active bond fund takes a lot away. If its your best option go ahead and use it.
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May 27, 2015 06:33
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mrmcd posted:Come on dude! This 4X inverse Nasdaq futures ETF is totally a good place to put all my retirement money! Also make sure to invest in things like MLPs ETNs or private equity ETFs which happen to have sky high expense ratios.
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May 27, 2015 07:24
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warderenator posted:I had it in my 401k for a while but swapped it for a target date fund with a lot of bonds that had a very low ER. Its a fine fund but considering how low yields are right now the ER on an active bond fund takes a lot away. If its your best option go ahead and use it. Thanks for the thoughts. The 401k manager is John Hancock. The list of funds I have access to is decent. ER's are okish - Pimco is 1.05% with the underlying fund of 0.85%, so they're "only" slapping an extra 0.2% on it. I think I'll just transfer most of it into the JH flavor of the 500 Index Fund (JFIVX) with a 0.63% ER and call it a day.
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May 27, 2015 17:25
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Is there a big difference between investing via ETFs instead of straight into a mutual fund?
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May 29, 2015 19:03
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Barry posted:Thanks for the thoughts. Holy poo poo. Email your 401k provider the words "Tibble vs Edison" right now. That's horrible.
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May 29, 2015 19:18
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Deadulus posted:Is there a big difference between investing via ETFs instead of straight into a mutual fund? If you're comparing effectively-equivalent ETFs and mutual funds, (for example, VTI and VTSAX) then at the end of the day they're basically the same. There's a few nuances, but really just use whichever is easier/cheaper with your brokerage. For instance, VTI has the expense ratio of the admiral shares (VTSAX vs. VTSMX) without the $10,000 minimum investment.
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May 29, 2015 19:24
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I switched jobs this month and I'm now working for HP. This means I have to futz around with my 401k again. Here's some basic information:
My two questions are:
In particular I don't actually know how to evaluate the HP funds since they don't appear to have real tickers or have information publicly available about them. I think that BrokerageLink would let me just get normal funds and I could just chuck all that money in a Vanguard fund or something, is that right?
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May 29, 2015 19:28
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Deadulus posted:Is there a big difference between investing via ETFs instead of straight into a mutual fund? For highly liquid equity ETF's, either are fine choices. There are some reasons to avoid Bond ETF's, since the actual underlying assets (the bonds) can sometimes be thinly traded, such that institutional investors cannot use the creation/redemption method to keep the ETF's trading close to NAV (it is this arbitrage mechanism that keeps ETF's traded at close to NAV). This results in the ETF's trading at a discount, a bad situation if you need to sell. Oftentimes, this happens at the worst times, when you need to rebalance out of bonds and into equities. I would say most people should stick with open-ended mutual funds for bonds if they can, but it is not a big enough deal such that if ETF's are more convenient, go for it. For equities, as long as trading commissions are low and bid/ask spread is low (generally the case for highly liquid ETF's), they are fine choices and often have slightly lower expenses than the mutual funds.
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May 29, 2015 20:12
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I used to work for HP and I think they just used Fidelity? I don't remember the fund structure but they didn't seem absolutely awful. I think the vesting period is 100% at either one or two years, I don't recall.
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May 29, 2015 20:12
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GoGoGadgetChris posted:Holy poo poo. Email your 401k provider the words "Tibble vs Edison" right now. That's horrible. It's hardly ideal but I would imagine that just about every large 401k manager is going to slap some form of fee on top of the underlying fund fees. The S&P500 index is pretty egregious, however.
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May 29, 2015 20:25
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I just set up a SIMPLE IRA with vanguard for my small business (eight employees). I gave an hour lecture on indexing, the target retirement funds, and asset allocation and then emailed them all links to the relevant asset allocation pages on boglehead wiki, vanguard, and even r/personalfinance. I also gave most of the reading list in the OP. Five signed up. Three picked the money market fund and two picked the mid cap growth stock fund (~0.45% ER). Those two are Dave Ramsey devotees and want to go all stocks in their 40s. I'm pretty sure they don't have other retirement assets. I know this stuff we talk about here is nerdy, but how do I educate/convince these people to invest better? I know I can't ethically just allocate their funds into target retirement myself.
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May 29, 2015 20:43
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Let them manage their own money? VMGRX is hardly a bad fund.
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May 29, 2015 21:10
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Bellagio Sampler posted:I just set up a SIMPLE IRA with vanguard for my small business (eight employees)... Sorry this is only half on-topic, but how difficult was setting this up? I have a very good retirement plan with my employer, but my fiance works for a small clinic which offers no retirement plan whatsoever. During the last two contract negotiations, I've asked her to push them to set up a retirement fund and the response has been "we're going to look into it..." I can't imagine it's that difficult, but I'm curious.
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May 29, 2015 21:42
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Series DD Funding posted:Let them manage their own money? VMGRX is hardly a bad fund. I agree, it's just not optimal. I love the min-maxing stuff we do here and I'm feeling a little paternalistic, I suppose. P0PCULTUREREFERENCE posted:Sorry this is only half on-topic, but how difficult was setting this up? I have a very good retirement plan with my employer, but my fiance works for a small clinic which offers no retirement plan whatsoever. During the last two contract negotiations, I've asked her to push them to set up a retirement fund and the response has been "we're going to look into it..." I can't imagine it's that difficult, but I'm curious. It's super easy. We just mailed in about 20 pages of paperwork and they contacted us to set us up with an online account similar to a Vanguard personal account. Here's some links: https://investor.vanguard.com/what-we-offer/small-business/overview https://personal.vanguard.com/pdf/s194.pdf?2210092784
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May 29, 2015 21:52
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