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Cross_ posted:I am still confused by some of the basics of mutual funds and how they relate to retirement savings. Are they to be treated like any other stock, i.e. buy some cheap MF shares and in a year or two when they have increased in value sell them? Sort of. Ideally you have some kind of mix between stocks and cash/bonds. If stocks go up a lot, you should be taking some profits and moving them over to the bond side of your portfolio. This is called rebalancing. Cross_ posted:Or is the idea that since the fund's manager will be buying and selling individual shares you are provided with a steady income from capital gains from those sales as well as dividends? No, not in general (unless the mandate of the fund is to provide steady income through a mix of high quality bonds and stocks of companies with a history of stable dividends). Mutual funds typically have a mandate to stick within a certain asset class. For instance, a domestic stock fund is going to be pretty much always fully invested in US stocks. Which means your portfolio value will be going up and down according to the general stock market (more or less). Your mutual fund manager ain't watching out for your best interests; instead, he is benchmark-focused, which ordinarily means hugging an index (there are obviously exceptions). So it is your job to manage risk in your portfolio and smooth returns... the ordinary investor accomplishes this by rebalancing (see above). 80k fucked around with this message at 02:20 on Apr 10, 2009 |
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Apr 10, 2009 02:13
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Ravarek posted:Hey 80k, I don't own individual stocks. Just index funds and ETF's.
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Apr 24, 2009 23:20
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il serpente cosmico posted:Right now I'm investing 10% of my salary into my 401k. I have all of my money in a Bond fund simply because it's earned a pretty stable 5% in the last 10 years. I've looked at all of the equity funds available, and while they've had excellent rates of return in the last 3 months, they've actually lost money over the past 10 years. It's unlikely that I'm going to be at my current place of employment for more than 5 years as I want to advance my education (there's very little room to grow where I'm currently at). Should I put any of my money into the market, or should I just go with a stable return? My 401k has pretty limited options, and none of the market-based funds have done particularly well. I plan on rolling my money into a Roth IRA after I leave. Should I risk putting my money into equities for a few years? When you roll over to an IRA, you can invest in similar equity funds. Unless the transfer of assets gets botched up, it should be a smooth transition with minimal time out of the market. So just because you don't plan to stay at the company long, doesn't affect your intended investing timeframe. . Check your fund options and look at their expense ratios. If you don't see anything good, re-evaluate (based on company matching, if any) whether you should be contributing to the 401k or in an IRA (assuming you haven't already maxed out your IRA). Determine your asset allocation (stock/bond ratio) first. Then see how your 401k/IRA/taxable account options work best in terms of cost and tax considerations. Example: my 401k equity options suck, so I put everything into stable value (the least bad option in my plan). But I make up for it by taking mostly equity risk in my Roth IRA.
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Aug 3, 2009 21:46
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il serpente cosmico posted:Thanks for the advice. I actually don't have an IRA at the moment, but I'm going to be opening one through USAA in the next couple weeks and begin funneling my money into that. I get the max match from my employer at 3%, so I'll reallocate the other 7%, as well as some of my other savings, into my IRA. I don't make much of a salary (though my benefits are very good), but I might be able to max out a Roth. $4K is probably a more attainable goal. I have a lot of money in liquid bonds at the moment, and zero debt, so I can really focus on a retirement account for the foreseeable future. Opening up your IRA is dead simple. You can just put it in a money market fund while you research investment choices, and transfer from the MM fund to your longterm investment portfolio when you are ready (which you can do in one or two business days, as long as you are staying with the same investment company). Do a tiny bit of research first to see where you want your IRA held (USAA, Vanguard, Fidelity, T-Rowe), with attention on fees and availability of good investment choices. Then open an account and take more time before deciding on specifics. If your salary is low, you probably pay very little taxes, making a Roth a good choice. 401k's are notoriously bad. Unless you're one of the lucky few who have a great plan, then you should only use it because a.) you want to get the company match, and b.) you've maxed out your IRA and still want some tax-sheltered space to save for retirement. 80k fucked around with this message at 16:38 on Aug 4, 2009 |
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Aug 4, 2009 16:33
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Happydayz, Go ahead and use the G Fund for your bond allocation, if you want. If I had access to it, I would divide my bond allocation evenly between TIPS and G-Fund, and call it a day. No sense in taking on interest-rate and/or credit risk with nominal bonds when you have the G-Fund.
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Aug 6, 2009 22:57
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Happydayz posted:I'm trying to work out this rationale in my head It's not about minimizing risk, but about choosing your risks carefully. Consider your portfolio in its entirety. A person can only handle so much risk. Take on a little credit or interest rate risk with your bonds, and you may want to offset that risk by having a lower equity allocation. Use the G-fund, and you can raise your equity allocation. Your decision on which bond funds you choose has a direct relationship with what stock/bond ratio you would be comfortable with. My recommendation for the G-Fund is because it's an opportunity to have a very attractive risk-adjusted return. Returns similar to longer duration bonds with zero risk of principal. There is a small free lunch there, which exists simply because the fund is not available to the public. If you are comparing it to bonds of both longer duration AND lower credit quality, then sadly, you are asking too much.... that would be too big of a free lunch. Anytime a small free lunch arises, you should take it. This allows you to direct your risk taking endeavor in other ways (having a higher equity allocation, or tilting to small-caps or emerging markets equity). TIPS offers a diversification benefit, and allow you to lock in a real rate of return, so they are very different from the G-Fund. Rather than simply divide 50/50 TIPS/G, a better strategy is to buy TIPS individually, and only when they are at attractive rates (like 2.5% or greater). So you can skip TIPS for the time being. I've been a net seller of them over the past few months.
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Aug 6, 2009 23:31
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ad infinitum posted:Does this advice change for someone that prefers to invest in a TIPS fund instead of individual TIPS? In what cases does it make more sense to buy individual TIPS rather than a fund that invests in TIPS, and in what cases is the opposite better? Sure, the Vanguard TIPS fund average duration is roughly a 10 yr maturity TIPS. So you can buy and sell the fund as you would a 10-yr TIPS. When does it make sense to buy individual TIPS? If you want to control maturity/duration. Most important reason is if you have a desire/need to lock in a real rate of return for a longer period of time. Perhaps you believe the treasury will discontinue issuing new TIPS, or that someday demand for TIPS will rise and permanently bring down yields. I've always been mildly wary of reinvestment risk of TIPS, so if I have an opportunity to lock in 20+ years of 2.8% real return with longer maturity TIPS, I'll load up on them. Can't do that with a fund. But really, you have to like TIPS as much as I do to even bother with individual TIPS, so most people would be just fine with the fund.
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Aug 7, 2009 01:16
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Check your tax treaty between your country and the US. Generally you cannot invest in US based mutual funds, but you can invest in direct securities through a US-based brokerage (where you wire money to the US), which luckily for you, includes ETF's (which are essentially index funds). You probably do not need to pay any capital gains taxes, but you will get a flat percentage haircut on all of your dividends. This is really not bad. Between federal and state taxes, all US citizens pay about the same as a non-resident in taxes on dividends, plus we need to pay capital gains taxes on sales. Look into the discount brokerages (Scottrade, Firstrade, Wellstrade, etc) and inquire about setting up an account as a foreigner. You will need to file some kind of W-8 form, and keep it updated with the brokerage.
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Aug 10, 2009 16:14
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If you've decided 30% bonds meets your risk tolerance, then 20% bonds/10% REITs is too risky. Stay with 30% bonds and if you want REITs, take them out of your equity allocation.
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Aug 13, 2009 22:02
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il serpente cosmico posted:Some quick questions now that I have my Roth IRA going. My mutual funds pay dividends. My bond fund pays monthly, and my target retirement fund pays annually. These dividends will be reinvested. Will I need to claim this dividends on my tax return as capital gains? Secondly, I hear dollar cost averaging is your friend when contributing to mutual funds. I'm a little fuzzy on the math--it seems to me it's good for mitigating risk, but I don't see any other benefits. Nope. Dividends and capital gains are completely under the shelter of the Roth IRA, so you never need to claim or pay taxes on them. You can buy and sell and exchanges funds all you want within that shelter, and never have to worry about paperwork or taxes. Just invest in small increments throughout the year, whenever you have funds available. Regular small contributions is pretty much dollar cost averaging. The question of whether to DCA comes into play when you suddenly find yourself with a large lump sum of money and you want to choose whether to throw it all into your portfolio at once, or to DCA. But for most of us, who just have a little bit every paycheck to put into our retirement accounts, we are not faced with this choice.
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Aug 18, 2009 19:27
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Ledneh posted:My 401k at my old employer (from a year and a half ago) is still sitting around with about $8000 in it right now. Was never sure what I should do with it, and since both my old and current employers are under Fidelity, I figured I'd just let it be. You can ROLL OVER your 401k to a Rollover IRA (which is essentially a Traditional IRA), with no tax consequences. You can then CONVERT the Rollover IRA to a Roth IRA, if you want. If you decide to CONVERT, then the conversion amount will be taxable income and you would need to consider whether it is worthwhile. The $5K contribution is a contribution from wages, which is separate from rollovers or conversions. So if you qualify for a Roth IRA based on your income, go ahead and go up to the max of $5K. I would rollover your old 401k to a Rollover IRA now. If you do it within Fidelity (i.e. your Fidelity 401k to a Fidelity IRA, this can be done over the phone and in one business day. I have done this and it was a piece of cake). And don't convert to Roth unless/until you have had a chance to review your tax situation. Best time to do it is during a year where you had an extended period of unemployment or otherwise low wages, where you can take advantage of your lower tax bracket. And you don't need to convert the entire balance. People generally convert small chunks at a time so as not to push them into the next tax bracket.
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Aug 21, 2009 17:06
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DreadCthulhu posted:Here's my current situation, I was hoping that someone experienced in the area could give me a few pointers about it. If you pull the money out before you turn 59.5, then you will pay income taxes on the distribution plus 10% penalty. So no, you won't lose more than you put in. You can also leave the money here (either remaining in your employer's plan or roll it over to an IRA at a custodian that lets foreign nationals open an account) and remain invested and maintain a US-based retirement account, even if you go back to your home country. Also read up a bit on the tax treaty between your country and the US. If all of this gives you a headache, just forget about the 401k unless the company match is really good.
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Aug 24, 2009 17:35
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AreWeDrunkYet posted:The options I've been looking at include: VIPSX 1.2% yield is a real yield, and the rest are nominal yields. So it is not "more interest rate risk for less yield". If inflation over the next decade is 2-3%, VIPSX is a good deal compared to other options. Consider that high quality munis should have significantly lower default rate and much better recovery rate than high quality corporates. I'd consider VFSTX in a retirement account (tax sheltered) for longterm holding for the bond portion of my portfolio. I'd prefer VMLTX for short-term cash parking in a taxable account. At the moment, my preference is mostly VIPSX/TIPS for the bond portion of my retirement portfolio. I use VMLTX and 1-2 year CD's to park my cash.
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Oct 22, 2009 17:57
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AreWeDrunkYet posted:I was referring to structural interest rate risk. I understand that TIPS hedge the inflation portion of rate changes, but if real yields vary over time, would my position not be exposed to this risk no differently than any typical fixed income security? Real yields will fluctuate (in the past couple of years, 10-yr TIPS have gone from 2.8% to less than 1%) and so you will experience significant volatility over the short-term, just as you would with nominal bonds. But hedging the inflation portion is an important difference. TIPS guarantee a real yield if you hold to maturity, whereas a nominal bond can easily experience a negative real return. I always prefer to keep nominal bonds to be short duration, but have no problems going out 20 years or even higher with TIPS (as long as I am happy with the real yield at the time that I purchase it). From an MPT-perspective and defining volatility as risk, this makes no sense. But from a perspective more akin to the institutional strategy of "immunization", it makes a lot of sense, since TIPS are structured to be more relevant to the consumption needs of ordinary investors. If you are a pension fund with known fixed payout obligations, longterm nominal bonds are an essential part of the strategy. For an ordinary person that is more concerned with personal standard of living, longterm TIPS make more sense. Volatility is an important aspect of risk, but the structure and guarantee of a security is also important in deciding what is more suitable to you, as the volatility in the short term eventually converges to different guaranteed outcomes. AreWeDrunkYet posted:Actually, none of this cash is in a retirement account - again, it's dry powder for the right circumstances. My marginal rates make munis almost a non-consideration despite their quality. I understand your propensity towards inflation hedged and low-risk/tax protected short-term securities, but why is it that you feel that the protections offered by them are worth giving up the additional yeild from short-term corporate paper? And 1 year CDs are currently offering in the 1.75% range - this seems like quite a yield hit to short-term corporates and a gamble on short-term rates staying low, even with the bonus of downside protection. An important thing to recognize is that I am not giving up additional yield by choosing CD's/munis/treasuries over corporates, because this decision is not made in a vacuum. I'm simply choosing to take my risk elsewhere. There is an equity portion in corporate bonds, so I could easily choose to use short-term corporates instead of munis/treasuries/CD's, and adjust my stock/bond allocation to compensate and get similar expected returns on my entire portfolio. I've designed my portfolio to keep correlations low between asset classes and to maximize efficiency based on my tax bracket and ratio of space between my tax sheltered and taxable accounts. You could easily have a suitable mix of investments using short-term corporates, and I believe I made a post in favor of using short-term corporates several pages back in this thread. Keep in mind many people make the mistake of coming up with an asset allocation FIRST, and then filling up each portion afterwards. Your asset allocation should be highly dependent on what type of investments you choose. If you want high yield bonds and your equities tilted towards small/value stocks, then your stock/bond allocation would be very different than if you wanted treasuries and broad-market weighted stocks. 80k fucked around with this message at 21:33 on Oct 22, 2009 |
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Oct 22, 2009 21:29
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Ravarek posted:Hey 80k, I've been interested in WIP (which is global inflation-linked bonds), except I believe it has some emerging market bonds in there which I am not too keen on. Overall I wouldn't consider international bonds unless you spend substantial money in non-US currencies. I certainly wouldn't bother with it if you still have a relatively small portfolio.
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Oct 23, 2009 16:13
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AreWeDrunkYet posted:I specifically cited my risk tolerance because income fluctuations would have no impact on my quality of life. The real risk, in my opinion, is a spike in inflation at the moment that I need access to my liquidity, but wouldn't the additional yield for short duration paper theoretically mitigate the risk of poor timing of inflation? High quality short-term high quality bonds in general (whether munis, AAA corporates, or agency bonds) are good places to park your cash, as they have historically done a good job in mitigating inflation risks (much better than money market and treasury bills). Within that category, the additional yield of short-term commercial paper is compensating you for credit risk. If inflation spikes at a time you need to access cash, a likely scenario would be for credit spreads to widen, giving a hit to the value of your corporate bonds. This behavior would not be desirable for your purposes, imo. Accessing one risk premium (equity/credit) to mitigate a different risk (inflation) works when you have a long enough time period for the additional return to be smoothed over a few economic cycles. And even then, you are at risk to those once-in-a-generation shocks like we just experienced. This is why I use the highest quality bonds even in my longterm retirement portfolio. I am lukewarm on using high quality short term corporates for cash purposes. I generally stick to higher quality. But credit risk has historically been well rewarded on the short end of the curve, so it is still a smart risk to take. AreWeDrunkYet posted:I think I understand where you're coming from, and portfolio-wide risk wouldn't be hedged against fluctuations with short-term corporate paper if the rest of my holdings are equities and similar instruments. However, I'm not sure if taking such a holistic view of my holdings is worthwhile under my current circumstances. I've got effectively three categories of holdings - retirement accounts that for, well, retirement, shorter term accounts that are there to provide passive income while maintaining value for some level of liquidity (for example, a home purchase), and cash to enter the second class of assets when I feel doing so is appropriate. Is this the wrong approach to be taking? I understand that I'm missing out on portfolio-wide diversification and hedging with this strategy, but I enjoy the flexibility offered by this approach. If I have no desire to withdraw the retirement assets until retirement, is this approach flawed to trying to take growth risks and build a (risky) passive source of income while I'm still working? In general, the non-retirement assets ARE weighted towards a greater level of risk, hence the tilt towards low-cap value stocks, emerging markets, etc. Under this approach, am I overweighting equity risk by moving cash into low duration corporate paper rather than TIPS/munis? What you are doing is fine. But even so, you still need to take a holistic view of your holdings. Your job, your cash bucket, and your retirement account are still connected. You are still young and plans can change dramatically. Extreme situations can force you to access your retirement account. Your ability to contribute to your Roth in subsequent years is dependent on both income from your job and the performance of your cash bucket. Uncorrelated assets will actually boost your return for this reason (due to the effect of rebalancing). I had substantial dry powder from short-term treasuries in 2008 (i switched to munis late in the year) that rose in value at a time when equities tanked, allowing me to make contributions to stocks at bargain prices, even when my job outlook was poor. Today, although my cash bucket is earning very little, I am selling a lot of stocks at a profit, making my cash bucket grow substantially. Throughout this entire time, I have also had the benefit of smoothing volatility of my entire portfolio, which is vitally important to me. Life decisions, changes in jobs, moving across the country, having kids, etc... all of these life events will require evaluation of all of your financial assets, no matter what bucket they are in. I suggest you keep maintaining your current plan, but maintain a holistic view as well. How much equity risk you decide is a personal decision, but the decision to view it holistically is a requirement, imo. I'll take a look at your portfolio later today, if I get a chance. Your American funds are fine, if you already paid the front-end load. As far as the rest, I like to keep 50/50 domestic/international. For domestic, a broad market and a small cap or small value stock is all you really need. For international, a broad market (like VFWIX) plus International small cap (VFSVX) and emerging markets (VEIEX) and maybe international (VTRIX) is all you really need to consider. For bonds, we've talked about that quite a bit. I use mostly TIPS and short term munis/treasuries/agency bonds. Some mix of the above (or their ETF equivalents) is pretty much what I would end up recommending. AreWeDrunkYet posted:On another note, I've had a discussion with someone I trust that recommended just leaving the cash in my brokerage account (Zecco) at their piddly money market rates. Even if I lose out 1% yield or so, having same-day access to the funds if I want to make an asset purchase (Vanguard is NOT my brokerage) would be more worthwhile should the opportunity arise? Thoughts? I doubt ability to make same-day purchases is going to give you a boost in performance over the longterm. That said, I tend to keep my cash management simple, and value convenience over yield. But right now, Vanguard's money market funds have gone so low, that I have moved cash to my credit union.
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Oct 23, 2009 18:05
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Ravarek posted:80k: I don't know offhand, but probably ishares. Look for average credit quality and duration to be similar to Vanguard's Short Term Investment Grade bond fund.
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Oct 30, 2009 16:45
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DrBouvenstein posted:I'm starting a new job soon, and will finally start contributing to my retirement, although a lot later than I would have liked (27.) I am working for a university, so I have a 403(b), and not a 401(k). Are their any major differences I should know about? Here's a blurb from the HR website: No major difference between them. DrBouvenstein posted:So if I am to understand this part, I am on my own for the first 3 years, no company (university) matching. That sucks...but I assume I should still contribute, right? Or is it better to say "no thanks" to the 403(b) until I get company matching and instead go for a Roth IRA? I know that ideally one does both, but I don't think I'll be making enough money. I'll wait a few months and see what my budget is first. I might have to keep my current job (waiting tables) as a part-time Fri and Sat night only gig to get some extra cash. Well...I know I won't need to keep it, but it's hard to turn down an extra $200-$250 a week. And maybe I can just shove a bunch of that into a Roth IRA, so I can do as much as I can to my 403(b). Yea, first 3 years there is no matching, so you can budget towards maxing your Roth as a priority over the 403(b). I'm guessing you are in a low tax bracket, which would make a Roth pretty attractive. DrBouvenstein posted:And then I guess I have the following investment options? Money Market is not a "riskier" option. It is considered very low risk. Anyway, the word "annuity" is used in an unconventional way at TIAA-CREF. All investments through a TIAA-CREF 403(b) plan is considered part of their RA (Retirement Annuity) or Group Supplemental Retirement Annuities (GSRA), whether they are equity, bond, stable value, or real estate account. It is the investment class (equity vs bond vs real estate, etc) that determines risk, since they all use the terminology of an annuity. TIAA-CREF choices are only attractive for their two relatively unique offerings. The TIAA Traditional (as part of their RA) is an attractive option that provides guaranteed income at a very good rate and option to annuitize. But the downside is its limited liquidity (10-yr withdrawal period and other restrictions). The TIAA Traditional (as part of GSRA) is less restrictive but also less attractive. The TIAA Real Estate portfolio (please differentiate this from the CREF Real Estate Securities option, as this is totally different) is also unique in that it is direct investment in real estate with minimal leverage. This is different from REITs which are stocks, can be very volatile, and tend to be highly leveraged. Other than TIAA Traditional (RA Option) or TIAA Real Estate, which are worthy choices, you should select mostly Fidelity funds. They have very reasonably priced index funds over a diverse range of asset classes. Forget about Prudential. You don't need to consider their options. You really should read a book before deciding which investments to choose though. Bernstein's Four Pillars of Investing is often recommended here and is a fantastic book. Learn more about TIAA Traditional and Real Estate. There are many discussions on TIAA-CREF on retirement/investment forums. For your Roth, you can choose any fund family you want. I recommend Vanguard, but there are other decent choices.
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Nov 4, 2009 18:37
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Ravarek posted:Hey 80k, the only individual bonds I own are treasuries. For munis or corporates (I have no corporates at the moment, anyway), I would stick with a fund, due to liquidity and diversification.
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Nov 11, 2009 23:42
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Daeus posted:I just started investing in VEMIX and there is a redemption fee when you purchase. I looked on Vanguards website and it says: The fee helps reflect the true cost of trading activity. This helps longterm investors from bearing the trading costs associated with inflows and outflows of money.
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Nov 15, 2009 06:26
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ZeroAX posted:80K and any other savvy folks, what are your thoughts on using one fund for the US stocks portion of your portfolio (VTSMX) versus splitting it up between large/small cap, growth/value, or both? having VTSMX and a total-international stock fund is a great start, but I do recommend adding small caps and/or value stocks, and reducing your overall equity exposure. If you tilt to small caps and value stocks, you can raise the expected return of your stock portfolio. But as this also raises risk, you can compensate by lowering your stock allocation and raising your bond allocation. Your expected return would be the same (as one with higher stock allocation, but the stocks are market cap weighted like VTSMX). But your lower overall stock allocation reduces the dispersion (both upside and downside) of your potential returns, which is a positive attribute in a portfolio. So I generally recommend tilting towards small and value stocks. Do a Google search for "Larry Swedroe Portfolio" where you will see an extreme example of this. He has a very low stock allocation, but the stocks are concentrated in the riskiest asset classes (small caps, international small value stocks, emerging markets).
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Nov 15, 2009 06:41
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Fuschia tude posted:Thanks for this tip. That search brings up an incredibly interesting set of blog posts and forum discussions. Also do a search for Zvi Bodie (adding keywords "TIPS" and "LEAPS") which will bring you to an even more extreme version of this philosophy. I think the idea of having a low stock allocation but making your stocks risky is particularly attractive for those that want to protect themselves from extreme outliers, and/or believe that downside risk in equities is greater than we give credit to (due to possible negative skewness in returns and fat tails). This is getting into Mandelbrot/Taleb territory.
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Nov 16, 2009 18:46
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abagofcheetos posted:My employer currently has a 401k that I have been contributing to. For next year they will be offering a Roth 401k, which I will solely contribute to. Would I then be able to cash out my old 401k and roll it into a Roth IRA, or do you have to not be contributing to any 401k play in order to roll over? Would it be possible for me to roll the 401k into the Roth 401k? Your are still employed at the same place, so I'm doubtful that you can rollover your existing balance out of the plan just because your employer is adding a Roth 401k option. But yes, you should just check with your plan administrator. You will still be needing your original 401k open if you are receiving company matching though, since the matching should still be contributed pre-tax. My guess is you will be maintaining both accounts and simply directing new money to the Roth 401k while receiving matching in the traditional 401k.
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Nov 20, 2009 23:26
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abagofcheetos posted:Hmm, the Q&A we were sent seems to suggest that they are going to match in the Roth, not separately in the regular 401k. Looks like I'll just have to wait and give them a call once I'm able to enroll. I'm just hoping to get all my retirement accounts to Roth as soon as I can. It's not an employer option. IRS rules require company matching to be pre-tax. IIRC that is. edit: "IRS FAQ on Roth 401k posted:Can an employer match an employee's designated Roth contributions? Must the employer allocate the matching contributions to a designated Roth account?
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Nov 21, 2009 02:04
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Don Wrigley posted:I've been contributing to a Roth for years now, and I know the matching contributions are pre-tax. I also have been contributing to a Roth IRA, but have no traditional IRA. Does this mean if/when I roll over my 401k, I'll have to roll my contributions into the Roth IRA, and roll the company's contributions into a (new) traditional IRA? Yes, that sounds right. I believe new legislation allows direct rollover/conversion of traditional 401k's into Roth (and pay tax). So presumably you can rollover your contributions and matching together into a Roth IRA, and pay taxes on the matching contributions. But it may be advantageous to rollover into Roth and Traditional IRA's respectively, and convert a little at a time. You definitely want to roll over your Roth 401k into a Roth IRA when you quit your job. Roth 401k's have minimum distribution requirements when you reach 70.5 (similar to traditional 401k's and IRA's), whereas Roth IRA's don't. Roths are great accounts to pass down to your heirs, so it's nice to have the option not to make distributions.
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Nov 25, 2009 17:24
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KarmaCandy posted:And if anyone's curious, here was his explanation: He's correct on the taxation issues, and on the benefits of ETF's. Some one earlier mentioned that daytrading and retirement-accounts should not be in the same sentence. However, i would rather day trade in my retirement account than a taxable account for the reasons your dad mentioned (cost of taxes, complicated tax returns, and wash sales). There is a legitimate longterm investing strategy that involves buying when the market is down and selling when it is up. It's called rebalancing, and is a foundation of asset allocation. However, it sounds like your Dad is doing a bit more than just rebalancing and is, in fact, market timing. I would clarify with him on how he decides to jump in and out of the market, so you can better understand where he is coming from. I am guilty of market timing myself, so I am not going to jump to conclusions about your Dad.
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Dec 3, 2009 05:26
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SecretFire posted:He's acting like taxation is the only reason to buy-and-hold, when there are lots of other good reasons. You're paying a decent amount of fees for an investment method which may be increasing your risk significantly and is unlikely to beat the market average in the long term. Yes, I just realized he is at Schwab, which means he is paying between $9 to $12 per trade. Plus there are bid/ask spreads (if he is using highly liquid ETF's, this is not a huge deal). I believe Schwab has a new series of low-cost broad market ETF's, allowing commission free trading. So that can reduce costs a bit. But being new ETF's, they could be thinly traded with wide spreads. Another option to reduce costs is to move to Wells Fargo, which has free trades if you qualify. But I agree that KarmaCandy is doing the right thing in taking control of his portfolio. Fixed asset allocation and rebalancing as needed is the right way to go for the vast majority of investors, imo.
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Dec 3, 2009 06:57
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Small White Dragon posted:Wait, I thought Money Market accounts were FDIC insured? Or is that not what you're talking about? Some FDIC banks (or NCUA insured credit unions) offer what they call a money market ACCOUNT, which is insured like any other deposit, and are just another savings vehicle (typically with higher minimums and higher yield). Mutual Fund companies offer money market FUNDS, which are NOT FDIC insured, but have a goal of holding the share value at $1.00/share. The government did step in to offer insurance on money market funds shortly after the Lehman collapse last year, but in general, they are not insured. At the moment, FDIC insured savings accounts and CD's are preferable to money market and bond funds, due to both better yield AND better safety (sounds like a free lunch, because it kinda is right now). The reality is that high quality commercial paper and treasury bills are yielding next to nothing, and this is what money markets invest in. Unlike banks, money market funds cannot give teaser rates nor provide loss-leaders (other than in the form of management fee reduction which is still subtracted from the yield from the underlying investments). At a time like this, there is no reason to choose a money market fund.
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Dec 6, 2009 02:05
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Dave The Ripper posted:I have $4,900 in a municipal retirement fund from a job that I quit after a year and a half. If I cash it out I will take a fairly steep tax on it. I'm guessing it is a qualified tax-deferred account, so the default choice should be to rollover to a Rollover IRA (which is a traditional IRA) and only convert to Roth if it makes sense (i.e. you are in a low tax bracket and you are able to pay the tax bill with money outside the account). No, don't go to your local bank. Bigger no to Edward Jones salesmen. Don't even meet with him once. DIY at Vanguard is a good idea, but read up on investments first so you know how you want to invest your money.
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Dec 8, 2009 20:48
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Dave The Ripper posted:Thanks 80k. I used to have an account with Edward Jones, but that thing dried up so fast with fees. My hunch is you will do better with ICMA than with Nationwide, as ICMA tend to have lower and more transparent administrative costs. Nationwide is typical of insurance companies running retirement accounts (complex fee schedule with hidden costs. Don't even bother asking what total fees are, as even their reps don't know how to add them all up). Check the funds offered in the 457 plans and get an idea of the average expense ratio, plus any additional administrative fees charged by ICMA. If it is low (not much higher than 0.5% total expense), it may be worth choosing a 457 over your own IRA. 457's have the added benefit of being able to withdraw at anytime without the 10% IRS penalty. If fees are too high, consider avoiding the 457 and focus your retirement savings on Roth or Traditional IRA's at Vanguard (where total expense is closer to 0.2%).
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Dec 9, 2009 00:36
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Solaron posted:If you're too clueless for Vanguard and don't want to gently caress something up horribly, are there other options with more guidance? Target Retirement xxx (as slap me silly recommended) is certainly better than being clueless and picking funds randomly. But reading one book (like William Bernstein's Four Pillars of Investing or his new Investor's Manifesto could benefit you for a lifetime.
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Dec 14, 2009 17:34
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SecretFire posted:Sounds fine. For the international component I'd suggest going with VEA rather than VWO, unless vanguard has a fund that combines those as well. That would be VEU.
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Dec 16, 2009 04:04
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Diseased Yak posted:Yup that's exactly what I was looking for. Thanks guys. yea, as long as you are getting dirt cheap commissions on trades. You don't want trading costs to become a significant percentage of your transactions.
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Dec 16, 2009 04:23
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Diseased Yak posted:I have my Roth IRA account at TD Ameritrade. They may not be the cheapest, but I'm only looking at 1 or 2 trades per year. So far I've been letting my IRA contribution build up in a savings account all year long and then investing in one lump sum. By adding two more ETF's to your portfolio, you will increase the "1 to 2" trades per year to possibly "3 to 6". This is the main reason to minimize the number of ETF's if you have a low balance. Keep that in mind when deciding the optimal portfolio, which can depend on your total balance. For instance, you could reduce down to a 2-ETF portfolio and be globally diversified. Simply use VT (Vanguard All World ETF which includes US and international stocks) and BND for bonds. As your assets grow, go to: - VTI/VEU/BND. - VTI/VEU/BND/TIP - VTI/VBR/VEU/BND/TIP - VTI/VBR/VEU/VSS/BND/TIP - VTI/VBR/VEU/VSS/BND/TIP/VNQ As your assets grow, it is no big deal to be doing 10-20 trades per year, allowing you to diversify more. Also, by the time you have $25K, you can open a Wellstrade account, get 100 free trades a year, and go hog wild.
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Dec 16, 2009 17:40
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that one guy posted:Is there any reason I would open my Roth IRA with Schwab rather than Vanguard? No, I can't think of any. Vanguard has the best selection of low-cost mutual funds. If you open your account at Vanguard, you will have free access to all their funds, plus no other annual maintenance fees as long as you opt into electronic delivery of statements/confirmations/prospectuses. However, in my opinion, the best option for investors getting started is to open an account at a discount brokerage that has low trading commissions and then use ETF's for your portfolio instead of open-ended mutual funds. In general, you will have the lowest expense ratios from using ETF's, as well as have more trading flexibility (no account restrictions or minimums). You have access to ETF's from major companies like Vanguard, SSGA, Ishares, and more from which to build a very diversified portfolio covering any asset class you can think of. If you qualify for Wellstrade's free PMA account with 100 free trades (you need $25K in total assets at Wellstrade), that is the best option. If not, it would also be cost effective to go to a place like OptionsHouse, which has dirt-cheap $2.95/trade, and no other maintenance fees. Zecco also has some free trading but charges an annual IRA fee, so i would avoid them. I am sure there are other good choices. 80k fucked around with this message at 19:32 on Dec 26, 2009 |
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Dec 26, 2009 19:22
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that one guy posted:When I put my money into a Vanguard IRA account I am locked in to buying the things that Vanguard offers. In general this is not a bad thing but it limits my options. When my money goes into my IRA account, I still have to invest it in something - is that right? So when I automatically send money to Vanguard every month that money isn't necessarily being invested in a mutual fund? I selected the 2045 target fund - but do I need to actually purchase the fund with the money I put into the account every month? Vanguard charges for that? - No, you are not locked into buying only Vanguard funds. There is a brokerage division that lets you invest in other fund families, stocks, bonds, ETF's, etc. It is free to invest in Vanguard mutual funds (provided you meet the minimums, and opt into e-delivery of statements). However, the brokerage commissions for accessing non-Vanguard funds is quite expensive, unless you qualify for the highest tier level of service (which requires $1M of household assets). - When you invest with Vanguard, the money has to go into some kind of mutual fund, even if it is just their money market fund. If you are automatically going into the 2045 Target Fund, then your money is going in there. Again, Vanguard doesn't charge for investing into Vanguard mutual funds. that one guy posted:What you suggest is opening an account with OptionsHouse (I don't have 25k). When I send my money there it will sit there until I choose to invest in something with it. When I choose to invest in something (stock, fund, etc.) with the money in that account, I will pay 2.95 each time I purchase shares in a fund/stock etc. This is good because through OptionsHouse I can make many different kinds of investments that I would not make with Vanguard, at a lower cost. In theory if I pick the right investments I can outperform a mutual fund? How is this different from picking individual stocks and trying to beat the market? (Something I'm not convinced I can do, and if I did think I could do it I'm not sure I'd want to spend the requisite time to.) My preference for ETF's over mutual funds is one of structure only. You don't need to meet fund minimums, nor do you have any account restrictions when you sell or buy shares. And they generally have lower expense ratios. Besides that, the strategy is the same: choose an asset allocation and buy-and-hold a diversified portfolio of ETF's. An ETF is the same as an index fund, just with different structure. Instead of having free purchases and sales (as with an open ended mutual fund), you have to pay commissions with a broker to buy shares of an ETF. That is the downside. But there are many upsides as mentioned above. that one guy posted:Also - EFT means Electronic Funds Transfer, correct? So you're saying I can transfer money around easily between my accounts? An ETF is an exchange traded fund. If you don't know what that is, then of course you are confused. Google them and learn a bit about the pros and cons of ETF's vs funds. Look, there is no problem with your original idea (going with Vanguard and investing in their funds). I recommend Vanguard a whole lot. But I felt a need to mention that I actually would recommend a different approach (that is, going with a discount broker and buying ETF's, even if the ETF's are Vanguard ETF's. Vanguard charges commissions for buying Vanguard ETF's, but not for their mutual funds).
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Dec 28, 2009 09:03
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slap me silly posted:ETFs are exchange-traded funds. You can get the same portfolio with ETFs that you could get with Vanguard funds, plus you have more options. The fee structure and how you maintain it is different (I would say more complex but I'm not sure because I've never used ETFs). It is different from picking individual stocks because an individual ETF is like an individual mutual fund, invested in potentially numerous stocks and bonds. The fee structure is quite simple. Most discount brokers have a flat fee for trades (should be $5 or less from a competitive online broker). And then you have a bid-ask spread, which is miniscule if you are dealing with highly liquid ETF's. Other than that, you have the expense ratio, just as you would with an open-ended mutual fund. Doing automatic monthly investments is probably not possible with most brokers. Plus, because of the commissions involved, you probably do not want to be making purchases monthly .
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Dec 28, 2009 09:34
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that one guy posted:I appreciate the clarification and your alternative recommendations. I know I have a lot to learn and I am happy to learn it. ETFs are on my radar and I'll be looking into them as I move forward. My reasoning is not complicated. Meeting fund minimums is tough for the beginning investor to diversify into several mutual funds (Vanguard has $3K minimums, some are $10K minimums). With ETF's you do not need to worry about minimums, provided you don't let commissions eat into your return. A few tips: - Use discount broker like OptionsHouse or WellsFargo (if you qualify for free PMA account with $25K total assets) to minimize commissions. - Reduce the number of transactions you make per year. Instead of monthly purchases, do quarterly or semiannually. Whereas with open-ended mutual funds, you can make tiny additional investments of $100 or so, with ETF's you want to buy in larger chunks if you pay a commission. - Use limit orders, especially on less liquid ETF's. Once your account size grows, the benefit of ETF's becomes more important because the lower expense ratio will start having significant savings. ETF's may not be for everyone, but everyone I know who has switched over to a primarily ETF portfolio is happy they changed. One of the greatest new inventions for the retail investor.
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Dec 28, 2009 18:01
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slap me silly posted:Even for longer term investments? Can you give an example of how this becomes important for something like an IRA? I'm following the rest of what you said but this I didn't understand. I'm talking about setting a limit order with the intention of immediate execution: i.e. set it at or below the current bid (if you are selling) or above the ask (if you are buying) quotes. With less liquid ETF's, this will help you avoid getting a very bad price, and has nothing to do with whether you are using an IRA or not. Do it during normal trading hours, preferably not too close to market open. Also don't leave stale limit orders, if the market moves away from you. Cancel it or reissue it closer to the current market price. Using stale limit orders with the hope of getting a better price than the current market price can work against you. Market makers treat them like free put options. If you want a lower price, better to watch the market and place your order when you expect it can be filled immediately.
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Dec 28, 2009 19:27
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Ravarek posted:Is this true? Holy gently caress. This sounds extremely unethical to me. If your limit order is marketable, you will get market price, so you are not vulnerable. I'm talking about stale limit orders, which stay on the books, and which market makers can see. Stale limit orders is a gift to market makers because you are willingly putting your cards out on the table. Calling them free options might be exaggerating because you can always cancel the limit order. But if you just leave them and walk away from the computer (or have a GTC order opened for days/weeks), you are engaging in similar asymmetric risk without earning a premium. A limit buy that is below the current ask leaves you unexposed if the stock goes up. If the stock moves sharply down below your limit, you will likely still have your order filled at the limit price. You could sell put options and earn a premium and accomplish the same thing. Same thing with a limit sell order. If the limit is above the current bid, you are exposed to the downside if the stock goes down. If it moves sharply up (above your limit price), you will likely still have your order filled at your limit price. You could have a covered call strategy and earn a premium for this. For longterm investors, my main point is to use marketable limit orders on thinly traded ETF's so as not to get screwed. But on the flipside, don't use limit orders for the purpose of trying to get better-than-market prices, unless you fully understand the game you are playing.
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Dec 29, 2009 08:23
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