Retirement-Era |OT| How to Invest For Retirement

[Mr.Mike]

I agree that all other things being equal, keeping money in employer stock is not a good idea due to the correlated risk to your main source of income (often also true of homes, interestingly enough). I get stock-based compensation at my job, and I sell as soon as I can, despite the stock outperforming the market. However, in my brother's case he is being offered a fairly significant discount as a form of compensation as well as a below-market loan rate. That discount would give him an automatic 10% return premium over the market for the next 5 years. That's not something easily shrugged off.

Because of that premium, it feels like there is probably a more sophisticated answer here as well - for instance hedging against losses by buying sector-based puts.

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It might be possible to get someone to write options for the actual shares and not just the sector. I don't know how someone would go about finding someone to do this, but I'd probably just go to a large bank branch and ask around for private banking services.

 

[Hekku Takku]

Target Retirement date fund is a good place to start if you absolutely have zero idea what you want to do or if you don't want to learn details.

If you want to pick specific funds, then look at total stock market index and total international stock index.

Long-term investing involves leaving money 10 or more years, so best to not look at the account frequently.

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I definitely want to learn the details. Reading everything that I have so far has been incredibly interesting and intimidating. I want to jump in with both feet.

So a few questions: So I open a retirement account with Vanguard and make a Roth IRA, correct?

Then I invest in total stock market index and total international stock index? I see the minimum investment for each is $3k. Can I invest in one now and then in a few months invest in the other?

Do the funds automatically go into the IRA or does it go to my bank and then I have to transfer it to IRA?

And regarding my job retirement plans....I have a 401k from my previous employer which I receive statements for every quarter. And I also have 403b from my current employer. Should I consolidate them? Rollover the 401k to the 403b or the IRA? Or both of them into the IRA? Or leave as is?

 

[Keyboard]

With new tax laws, most people will lean towards a Roth IRA for 2018.

IRAs have a limit of $5500 per year ($6500 if you're in age 50+ group for catchup). You can still contribute for 2017 until April.

If you prefer to keep your retirement plan simple, there's nothing wrong contributing to one target date fund. In fact, less you worry what's going on with your account, the better. Your time should be spent on other things like making money, learning new hobbies, and socializing.

Hard part is setting down a financial plan and sticking to it.

You will need funds from your bank.

From a 2015 law, you're limited to one 401K account rollover per year. You should roll over 401K immediately when you leave your old employer unless your employer's retirement plan has penalties (most don't but some do) to avoid paying expensive fees. You cannot rollover an account with your current employer unless you're 59.5+ years old.

What's invested in old 401K and 403b? You need to indicate what's in your entire portfolio for someone to help you how to form your retirement plan. We don't know what's invested.

Three-Fund portfolio is generally recommended for all kinds of investors. You can choose to deviate from there once you learn a bit more what's going on here. More funds doesn't mean better performance.

I've attached a bogleheads starter guide link here: https://www.bogleheads.org/wiki/Getting_started
List of Investment Portfolios: https://www.portfoliocharts.com/portfolios/

 

[Hekku Takku]

With new tax laws, most people will lean towards a Roth IRA for 2018.

IRAs have a limit of $5500 per year ($6500 if you're in age 50+ group for catchup). You can still contribute for 2017 until April.

If you prefer to keep your retirement plan simple, there's nothing wrong contributing to one target date fund.

You will need funds from your bank.

From a 2015 law, you're limited to one 401K account rollover per year. You should do this immediately when you leave your old employer unless your employer's retirement plan has penalties (most don't but some do) to avoid paying expensive fees. You cannot rollover an account with your current employer unless you're age 59.5+ years old.

What's invested in old 401K and 403b? You need to indicate what's in your entire portfolio for someone to help you how to form your retirement plan. We don't know what's invested.

I've attached a bogleheads starter guide link here: https://www.bogleheads.org/wiki/Getting_started

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Thanks for the info and I'm definitely going to read that starter guide.

I'm at work right now, but I did glance at my 401k last night and saw that S&P 500 index was on there. I can't recall what else was invested.

 

[Husker86]

From a 2015 law, you're limited to one 401K account rollover per year.

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Whaaat?? Oh boy...

 

[Keyboard]

I think I read that correctly.

You can help double check my reading comprehension.

https://www.irs.gov/retirement-plans/ira-one-rollover-per-year-rule

ok I read it incorrectly. I'm a dumbass.

https://www.irs.gov/retirement-plan...vers-of-retirement-plan-and-ira-distributions

Plan to IRA rollovers don't apply.

 

[Smiley90]

man all these gains, I can't handle them.

You just KNOW this shit's going to correct itself. I'm happy I didn't pull out after Trump got elected because I was scared it'd crash though, because these sweet sweet gains...

 

[Linkura]

man all these gains, I can't handle them.

You just KNOW this shit's going to correct itself. I'm happy I didn't pull out after Trump got elected because I was scared it'd crash though, because these sweet sweet gains...

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I'm not retiring for a long time, but I'm thinking now would be a good time for people close to retirement in the next couple of years to put all their shit in bonds/cash...

Edit: Ok, this is hyperbole. Sorry.

 

[FliX]

I'm not retiring for a long time, but I'm thinking now would be a good time for people close to retirement in the next couple of years to put all their shit in bonds/cash...

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Or not, people were saying that after the election too.
Best to not time the market one way or the other.

 

[Keyboard]

Market timing is frowned.

People should ask about their asset allocation if they're worried, which tells me they never had a financial plan in place.

I'm not retiring for a long time, but I'm thinking now would be a good time for people close to retirement in the next couple of years to put all their shit in bonds/cash...

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Bad advice to get out of the stock market completely. Minimum ratio is 25% stocks / 75% bonds.

I would suggest 40% stocks / 60 % bonds if you've met your retirement goals. For most people, goal is $1 million although some analysts suggest bumping that number to $2.5 million in 2015.

 

[Linkura]

Market timing is frowned.

People should ask about their asset allocation if they're worried, which tells me they never had a financial plan in place.


Bad advice to get out of the stock market completely. Minimum ratio is 25% stocks / 75% bonds.

I would suggest 40% stocks / 60 % bonds if you've met your retirement goals. For most people, goal is $1 million although some analysts suggest bumping that number to $2.5 million in 2015.

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Yeah you're right, my bad.

 

[demosthenes]

man all these gains, I can't handle them.

You just KNOW this shit's going to correct itself. I'm happy I didn't pull out after Trump got elected because I was scared it'd crash though, because these sweet sweet gains...

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I believe the tax cuts will push it forward. A lot of cash is going to be coming home. Wal-Mart raising minimum wages they pay it will be good for business at the expense of fucking the US government.

 

[Keyboard]

With all this recent talk about what to do, I think everyone can benefit from reading William Bernstein's short pamphlet "If You Can."

Excellent read for all investors.

https://www.etf.com/docs/IfYouCan.pdf

...there are only two kinds of investors: those who don't know where the market is headed, and those who don't know that they don't know.

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Trying to rationalize market performance is a waste of time unless your job revolves around reporting and making people watch your content through FUD.

 

[Smiley90]

With all this recent talk about what to do, I think everyone can benefit from reading William Bernstein's short pamphlet "If You Can."

Excellent read for all investors.

https://www.etf.com/docs/IfYouCan.pdf



Trying to rationalize market performance is a waste of time unless your job revolves around reporting and making people watch your content through FUD.

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That sure isn't stopping me from being scared :D I'm not timing the market at all, I'm not pulling any money out. I'm just scared of the eventual crash.

 

[Deleted member 6215]

With all this recent talk about what to do, I think everyone can benefit from reading William Bernstein's short pamphlet "If You Can."

Excellent read for all investors.

https://www.etf.com/docs/IfYouCan.pdf

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This was great, thanks for sharing it. Even though I've turned around my spending and saving habits in a big way (largely thanks to MMM), I feel like it's a learning process that takes continual effort to stay the course.

 

[filkry]

I feel like it's a learning process that takes continual effort to stay the course

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So true. Finally getting back on the bandwagon with food expenditure in our household.

 

[SpottieO]

That sure isn't stopping me from being scared :D I'm not timing the market at all, I'm not pulling any money out. I'm just scared of the eventual crash.

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How old are you? I'm 30 and I bet there pwill be at least 2 crashes before I retire, not really
concerned with it to be honest. Just got to be patient and smart with my allocations.

 

[Linkura]

With all this recent talk about what to do, I think everyone can benefit from reading William Bernstein's short pamphlet "If You Can."

Excellent read for all investors.

https://www.etf.com/docs/IfYouCan.pdf



Trying to rationalize market performance is a waste of time unless your job revolves around reporting and making people watch your content through FUD.

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He's saying to start with 33% of your retirement savings in bonds? Lolwut

 

[Keyboard]

33/33/33 is the laziest of all portfolios.

Equal weightings of Three-Fund portfolio.

Bernstein wrote a lot about asset allocation. You may have heard of that term when people say age = bond % or age -10 or age - 20. By writing down a investment plan and sticking to it, you don't change your plan because of how much of the stock market went up and down since you stick to a percentage.

I'm not seeing where he wrote stick 33% to start?

 

[Netherscourge]

Well, I finally made the call and created the account.

Just waiting for my 401K check to roll into my IRA.

Then I get to pick what the hell I'm doing with it.

Probably sticking with a 2040 Target Date Fund.

 

[Sinistar]

Hi all,

First time caller, long time listener. I've followed the thread for years going back to the old site, but am just now posting for the first time, looking for a small bit of advice.

Tomorrow I'm meeting via phone for the third time with a representative from Personal Capital, the newish Mint.com competitor. My wife and I are both 43 and currently have about 300k combined in old 401k plans from previous employers. I know that the common wisdom, at least in this thread, is "put it in a Vanguard target fund and forget about it". Personal Capital, like all good financial firms, instead wants to proactively manage our funds instead, claiming to have a better rate of return than the S&P 500 (albeit only beating it by about 1% over the past 25 years). PC uses stocks/bonds but they also invest some money in other areas like real estate, energy, and gold. They claim their diversification and "tactical weighting" allows them to stay ahead of market trends, which makes my portfolio more resilient to market ebbs and flows. I know a correction is coming, so I'm concerned about the amount of working years I have left and my portfolio's ability to withstand volatility.

Their management fee is .89%. If Vanguard target funds charge .2% but PC claims to generally beat the market by 1%, is this small margin worth it? I would also get other miscellaneous services like free financial advice, etc, but I'm primarily concerned with spending more on advice than the advice makes me.

Can anyone offer some advice here? What am I missing? I know these financial management systems have to be almost 100% a scam, but does the low fee point make the risk worth it? There's no way this can be worth the money, right? Please help me, financial gurus of ResetEra, I trust you folks with my money more than just about anyone in the world at this point.

 

[Linkura]

Hi all,

First time caller, long time listener. I've followed the thread for years going back to the old site, but am just now posting for the first time, looking for a small bit of advice.

Tomorrow I'm meeting via phone for the third time with a representative from Personal Capital, the newish Mint.com competitor. My wife and I are both 43 and currently have about 300k combined in old 401k plans from previous employers. I know that the common wisdom, at least in this thread, is "put it in a Vanguard target fund and forget about it". Personal Capital, like all good financial firms, instead wants to proactively manage our funds instead, claiming to have a better rate of return than the S&P 500 (albeit only beating it by about 1% over the past 25 years). PC uses stocks/bonds but they also invest some money in other areas like real estate, energy, and gold. They claim their diversification and "tactical weighting" allows them to stay ahead of market trends, which makes my portfolio more resilient to market ebbs and flows. I know a correction is coming, so I'm concerned about the amount of working years I have left and my portfolio's ability to withstand volatility.

Their management fee is .89%. If Vanguard target funds charge .2% but PC claims to generally beat the market by 1%, is this small margin worth it? I would also get other miscellaneous services like free financial advice, etc, but I'm primarily concerned with spending more on advice than the advice makes me.

Can anyone offer some advice here? What am I missing? I know these financial management systems have to be almost 100% a scam, but does the low fee point make the risk worth it? There's no way this can be worth the money, right? Please help me, financial gurus of ResetEra, I trust you folks with my money more than just about anyone in the world at this point.

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Management fee of .89% GTFO LMAO

Tell them to go fuck themselves.

 

[Keyboard]

Congratulations on saving that much! Your retirement profile looks better than most people's out there.

Answer is no. You're not missing anything. Run away from companies who say they promise a better return than the market. That's a bold face lie. Companies would rather play with other people's money for active trades rather than their own. You can't serve two masters.

Stick to indexing with a Three Fund Portfolio outline and self-management.

Total Stock Market and Total International Stock indices include weightings (energy, real estate, tech) outside of gold as gold is not an investment. It just sits there, and you can't do anything with it. Speculators determine how much it's worth.

You can also choose to focus certain sectors if you think the total fund weightings are not enough like real estate (REIT), which involves companies who invest in properties, or Emerging Markets.

Bonds is where things get a bit tricky, and I typed out a post earlier exploring options. You can find a link in the OP. Read and ask questions. Decide what you want to do.

_______________________________________________________

Take a look at the "If you can" by William Bernstein booklet that talks about some retirement basics.

https://www.etf.com/docs/IfYouCan.pdf

_______________________________________________________

If you prefer active funds and are open to something outside of Target Date Retirement Funds, you could consider Vanguard's Wellington Fund for your age. Some older people who want an active approach split 50/50 with Wellington and Wellesley or 100/0 with one.

 

[BeforeU]

I need some suggestions. I am heavily invested in single stock and ETFs. about ~$140k. I recently sold all my company shares (we could do that once a year without getting penalize on matching) I had almost ~20k worth. So i thought it was a good idea to pull out because that's way too much money invested in a single stock

Anyways, so now i have 20k sitting there, and i don't know where should I put it. Everything seems too high and also I have never invested this much money at once. Can someone recommend me a bond? I am in Canada btw and use Questrade.

 

[Deleted member 6215]

Hi all,

First time caller, long time listener. I've followed the thread for years going back to the old site, but am just now posting for the first time, looking for a small bit of advice.

Tomorrow I'm meeting via phone for the third time with a representative from Personal Capital, the newish Mint.com competitor. My wife and I are both 43 and currently have about 300k combined in old 401k plans from previous employers. I know that the common wisdom, at least in this thread, is "put it in a Vanguard target fund and forget about it". Personal Capital, like all good financial firms, instead wants to proactively manage our funds instead, claiming to have a better rate of return than the S&P 500 (albeit only beating it by about 1% over the past 25 years). PC uses stocks/bonds but they also invest some money in other areas like real estate, energy, and gold. They claim their diversification and "tactical weighting" allows them to stay ahead of market trends, which makes my portfolio more resilient to market ebbs and flows. I know a correction is coming, so I'm concerned about the amount of working years I have left and my portfolio's ability to withstand volatility.

Their management fee is .89%. If Vanguard target funds charge .2% but PC claims to generally beat the market by 1%, is this small margin worth it? I would also get other miscellaneous services like free financial advice, etc, but I'm primarily concerned with spending more on advice than the advice makes me.

Can anyone offer some advice here? What am I missing? I know these financial management systems have to be almost 100% a scam, but does the low fee point make the risk worth it? There's no way this can be worth the money, right? Please help me, financial gurus of ResetEra, I trust you folks with my money more than just about anyone in the world at this point.

Click to shrink...

I never feel too comfortable giving anyone else direct financial advice, but I will say I was in a very similar situation to yours last year and I opted to go the Vanguard route. I had foolishly allowed a large amount of money to sit in a very high expense fund with Primerica (shudder) for nearly 15 years. It did "alright", but I was definitely allowing the tail to wag the dog. I moved everything into a mix of VTSAX, VTIAX, and some long term tax-exempt funds and couldn't be happier.

 

[Keyboard]

I need some suggestions. I am heavily invested in single stock and ETFs. about ~$140k. I recently sold all my company shares (we could do that once a year without getting penalize on matching) I had almost ~20k worth. So i thought it was a good idea to pull out because that's way too much money invested in a single stock

Anyways, so now i have 20k sitting there, and i don't know where should I put it. Everything seems too high and also I have never invested this much money at once. Can someone recommend me a bond? I am in Canada btw and use Questrade.

Click to shrink...

We don't know if stocks look high now in 20 years. They may look lower. They may not. Who knows?

When do you plan on retiring?

 

[Linkura]

I never feel too comfortable giving anyone else direct financial advice, but I will say I was in a very similar situation to yours last year and I opted to go the Vanguard route. I had foolishly allowed a large amount of money to sit in a very high expense fund with Primerica (shudder) for nearly 15 years. It did "alright", but I was definitely allowing the tail to wag the dog. I moved everything into a mix of VTSAX, VTIAX, and some long term tax-exempt funds and couldn't be happier.

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Wow. Primerica is an MLM. Breh.... Glad you got it out, at least.

 

[Mr.Mike]

I need some suggestions. I am heavily invested in single stock and ETFs. about ~$140k. I recently sold all my company shares (we could do that once a year without getting penalize on matching) I had almost ~20k worth. So i thought it was a good idea to pull out because that's way too much money invested in a single stock

Anyways, so now i have 20k sitting there, and i don't know where should I put it. Everything seems too high and also I have never invested this much money at once. Can someone recommend me a bond? I am in Canada btw and use Questrade.

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http://canadiancouchpotato.com/recommended-funds/

I've been using ZAG for my bonds.

About foreign bonds.

 

[Deleted member 6215]

Wow. Primerica is an MLM. Breh.... Glad you got it out, at least.

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Yeah, it was something that my wife had from before we were married. She had gotten suckered into it from a family friend who was a "financial advisor" (life insurance salesman) who was happy to let the money sit in a fund with a .87 expense ratio. It won't hurt us too much in the long run, but it was an important lesson.

 

[Sinistar]

Thanks very much, Linkura/Keyboard/Fester. I kinda thought so, but wanted to be sure. As always, your honesty and insight are greatly appreciated.

 

[tokkun]

Hi all,

First time caller, long time listener. I've followed the thread for years going back to the old site, but am just now posting for the first time, looking for a small bit of advice.

Tomorrow I'm meeting via phone for the third time with a representative from Personal Capital, the newish Mint.com competitor. My wife and I are both 43 and currently have about 300k combined in old 401k plans from previous employers. I know that the common wisdom, at least in this thread, is "put it in a Vanguard target fund and forget about it". Personal Capital, like all good financial firms, instead wants to proactively manage our funds instead, claiming to have a better rate of return than the S&P 500 (albeit only beating it by about 1% over the past 25 years). PC uses stocks/bonds but they also invest some money in other areas like real estate, energy, and gold. They claim their diversification and "tactical weighting" allows them to stay ahead of market trends, which makes my portfolio more resilient to market ebbs and flows. I know a correction is coming, so I'm concerned about the amount of working years I have left and my portfolio's ability to withstand volatility.

Their management fee is .89%. If Vanguard target funds charge .2% but PC claims to generally beat the market by 1%, is this small margin worth it? I would also get other miscellaneous services like free financial advice, etc, but I'm primarily concerned with spending more on advice than the advice makes me.

Can anyone offer some advice here? What am I missing? I know these financial management systems have to be almost 100% a scam, but does the low fee point make the risk worth it? There's no way this can be worth the money, right? Please help me, financial gurus of ResetEra, I trust you folks with my money more than just about anyone in the world at this point.

Click to shrink...

Personal Capital has not beaten the market for 25 years; they have only been in business since 2009. What they mean with this claim is that they created an investment model, then applied it to historical data and said "If we had been using this model in the past, it would have gotten this return." This process of testing a model based on historical data is called backtesting. You should always be suspicious of claims made by backtesting, because they often fall victim to the statistical phenomenon known as overfitting: https://en.wikipedia.org/wiki/Overfitting

Because of overfitting you should not assume that performance based on backtested data is going to be predictive of data going forward. And I mean that in a stronger sense than the normal "past results are no guarantee of future performance" sense. It isn't just about the possibility that the future economy could be fundamentally different than the past, it's an inherent flaw in the process of using the same data set (historical returns) both to develop and validate a model.

 

[Jazar]

I have a situation, I'm 40, losing my job in a couple of months and getting about 20k severance (after taxes). I have a 6 month emergency fund, a healthy IRA & brokerage vanguard accounts with mostly overall index type stuff (VOO/SPY/VTSAX/VTIAX). Do I just dump it in VTSAX/VTIAX and call it a day? Or do I keep it in savings and then add it to vanguard on monthly installments? Should I put it in bonds due to my age? (thinking face)

 

[FliX]

I have a situation, I'm 40, losing my job in a couple of months and getting about 20k severance (after taxes). I have a 6 month emergency fund, a healthy IRA & brokerage vanguard accounts with mostly overall index type stuff (VOO/SPY/VTSAX/VTIAX). Do I just dump it in VTSAX/VTIAX and call it a day? Or do I keep it in savings and then add it to vanguard on monthly installments? Should I put it in bonds due to my age? (thinking face)

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Well, if you want to invest it bulk, once you have it.
Personally in your situation I would be hesitant to invest it at all till I have a job though. But I don't know your situation, you might have something lined up already or are not at all worried about finding something new.

 

[Jazar]

Well, if you want to invest it bulk, once you have it.
Personally in your situation I would be hesitant to invest it at all till I have a job though. But I don't know your situation, you might have something lined up already or are not at all worried about finding something new.

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I don't have anything lined up yet actually which makes me nervous. I mean I should have enough cushion for a long job search in savings but i'm hesitant just to invest it all at once.

 

[scurker]

You should roll over 401K immediately when you leave your old employer unless your employer's retirement plan has penalties (most don't but some do) to avoid paying expensive fees.

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I don't know that I would necessarily agree, it should be on a case by case basis. I specifically didn't rollover my previous employer's 401k because I had access to a level of funds (0.02% expense ratio) that weren't available either in an IRA or my new 401k. All things being equal, then yes you probably should rollover for greater flexibility but that won't necessarily always be the case.

What are everyone's plans for retirement, specifically early retirement? I'm still young, so I have a ways to go but I want to be prepared when the time comes. Conservatively estimating, I could most likely retire at 50 and be comfortable. More aggressively, 45 might be obtainable. The only issue is we're primarily contributing to tax advantaged accounts, so we wouldn't necessarily be able to draw from those accounts to fund my retirement directly until 59+. So we would need some way to plan for 9 or more years if I were to retire early. Our current breakdown is 22% roth, 72% 401k, and 6% taxable, so we don't currently have a large percentage of retirement savings in a taxable account. We don't tend to max out our tax advantaged accounts so I don't see our contributions to a taxable account increasing in the near future.

The current option we're considering are using a roth conversion ladder. We would have access to the contributions of of our roth IRAs at any point in early retirement, but I'm not sure our current 22% slice would be enough to live off of for 9 or more years. The only other reasonable option would be converting 401k funds to roth to have access 5 years past conversion, hence using the conversion ladder. The trick is being able to determine what your early retirement income will need to be and planning ahead accordingly to have access to the appropriate amount of funds after 5 years and additionally not increasing your tax liability too much when performing the conversions.

We also looked at 72(t) SEPP, but it looks like a nightmare to set up and if you get it wrong - strict penalties apply. There's also not a lot of flexibility if it turns out you don't actually need that income, you still have to withdraw it regardless.

 

[Keyboard]

I agree.

If you've read previous posts, I usually walk through a person step by step by asking them what are the expense ratios. Done a few if you're willing to look back.

Most people's workplaces have shitty 401K plans.

 

[TheTrinity]

I don't have anything lined up yet actually which makes me nervous. I mean I should have enough cushion for a long job search in savings but i'm hesitant just to invest it all at once.

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I would personally invest a portion (perhaps 50%?) and then hold the rest until you have a job a lined up. It's distinctly annoying to have to sell off investments to pay bills.

 

[Nothing Loud]

What is this 3 fund portfolio people are talking about? If it's equal investment into foreign, domestic stocks, and bonds, how do I do that when I've been investing in a blackrock lifepath 401k where I don't do anything to it? I also have a high risk high stock mutual fund on the side I throw money into because I'm 26.

If I buy into a specific mutual fund, I can't just change the ratios of that fund, right? So I have to sell and buy a new one?

 

[Keyboard]

LifePath funds are simply active funds of index funds (also known as Target Date Retirement Funds) using the three-fund principle. Although this may sound like a daytime infomercial, they're "set it and forget it" type of investing.

Nothing wrong with them. Some people like to have control on investments.

Best to rebalance a portfolio through buying.

Three-Fund Portfolio: https://www.bogleheads.org/wiki/Three-fund_portfolio
You can take a look at investment styles here. Notice how a three-fund portfolio easily mimics complex ones: https://portfoliocharts.com/portfolios/

 

[killertofu]

Have a question and I'm not sure what to do here:

I was working for a company for almost 3 years, had a 401(k) with them but decided last year to move and be a freelancer so I'm not making contributions on it anymore. I'm trying to see what my options are because I have an IRA set up with Ameritrade that I opened up a few years back. Is it possible to roll it over to that so I can get the benefits come tax season?

Also I'm wondering if there's any way to get that distributed without paying an absurd fee. I'm running low on my 'Fuck you' money, and fortunately I just picked up a gig that will run to March but it's still worrying to me. Most of the reason why I asked is because I got a notification from my 401k that said "Due to a qualifying event, you are permitted to take a distribution. You may withdraw your money by rolling into an IRA, rolling it into another employer's plan, or by distributing it payable to you." So I'm just wondering what my options are.

 

[Linkura]

Have a question and I'm not sure what to do here:

I was working for a company for almost 3 years, had a 401(k) with them but decided last year to move and be a freelancer so I'm not making contributions on it anymore. I'm trying to see what my options are because I have an IRA set up with Ameritrade that I opened up a few years back. Is it possible to roll it over to that so I can get the benefits come tax season?

Also I'm wondering if there's any way to get that distributed without paying an absurd fee. I'm running low on my 'Fuck you' money, and fortunately I just picked up a gig that will run to March but it's still worrying to me. Most of the reason why I asked is because I got a notification from my 401k that said "Due to a qualifying event, you are permitted to take a distribution. You may withdraw your money by rolling into an IRA, rolling it into another employer's plan, or by distributing it payable to you." So I'm just wondering what my options are.

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You aren't really going to get a "benefit" come tax season. But yes, you can roll over the 401k to the IRA without any penalty other than maybe a small $25 fee or something if they charge a transaction fee. You will have to pay taxes AND a 10% penalty on top of it if you take the money directly.

 

[Piecake]

Have a question and I'm not sure what to do here:

I was working for a company for almost 3 years, had a 401(k) with them but decided last year to move and be a freelancer so I'm not making contributions on it anymore. I'm trying to see what my options are because I have an IRA set up with Ameritrade that I opened up a few years back. Is it possible to roll it over to that so I can get the benefits come tax season?

Also I'm wondering if there's any way to get that distributed without paying an absurd fee. I'm running low on my 'Fuck you' money, and fortunately I just picked up a gig that will run to March but it's still worrying to me. Most of the reason why I asked is because I got a notification from my 401k that said "Due to a qualifying event, you are permitted to take a distribution. You may withdraw your money by rolling into an IRA, rolling it into another employer's plan, or by distributing it payable to you." So I'm just wondering what my options are.

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That qualifying event looks to be you quitting your former company.

1. Your best option is to roll it into an IRA
2. An okay option is to roll it into your next employer's 401k
3. The absolute worst option is to take the money for yourself

Option 3 is one of the common mistakes that people do that screws them when it comes time for retirement because they simply won't have enough. That money will no longer be in your retirement accounts and your money will be a whole lot less because you have to pay taxes on it.

Avoid 3 at all costs and try to cut costs or pick up another job if you are running low on cash

 

[Auros01]

LifePath funds are simply active funds of index funds (also known as Target Date Retirement Funds) using the three-fund principle. Although this may sound like a daytime infomercial, they're "set it and forget it" type of investing.

Nothing wrong with them. Some people like to have control on investments.

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My company's 401k plan (through Fidelity) offered Target Date funds. I went with this option for the first 3-4 years of my career (I'm almost in year 7, now) but I always saw low returns - around 3-4% annually. I was using a "Target Date" of 2050. I've since opted to take a little more control of my investments and, with suggestions from a financial adviser, have been able to increase the return in the last couple of years to 10%+.

The reason I bring this up is to ask for more input on the Target Date funds. If you're only seeing a low return like 3-4% per year, should you opt to take more control or is it acceptable to have low returns like that early in your career?

 

[Keyboard]

No. Not acceptable. What was the cost of the fund? Did it have a sales load?

I see these two funds that are very expensive. Was it one of these? Expense ratios are over 0.20.

http://www.morningstar.com/funds/XNAS/FFFLX/quote.html

http://www.morningstar.com/funds/XNAS/FFFHX/quote.html

You should aim to buy the cheapest index fund in a 401K as I said before, most people have shitty 401K plans.

I don't like how you phrased that last question as it's very leading.

If you decide to invest in a 529 for your child's education, people choose target date funds (pick year when child goes to college) for an easy way to invest.

 

[Auros01]

Those are good questions - I'll need to back and look at the details of the Target Date funds and see - it's been a few years so I'm not as familiar with them.

I wasn't intending to attack anyone with my last question - I was legitimately asking. I'm not familiar with how the Target Date funds are supposed to work - I honestly wasn't sure if returns of that level were acceptable at any point or not.

Thanks again for the information on what to look into in those Target Date funds.

 

[Keyboard]

These are questions that you can ask. I get a little tense when people start asking about yield chasing. Sorry that I was a bit hostile.

Here, we can learn something out of this exercise.

Let's take a look at comparing 3 of Fidelity's 2050 Retirement Funds from 2011 to 2015 to Vanguard's 2050 Target Retirement fund. Vanguard's colored green.

FIPFX - Fidelity 2050 Index (0.15 expense)
FFFHX - Fidelity 2050 Freedom (0.75 expense)
FFFLX - Fidelity Advisor 2050 Freedom (1.00 expense with 5.25 load)
VFIFX - Vanguard Target Retriement Date 2050 (0.15 to 0.16 expense)

Vanguard built its reputation of impeccable tracking indices at a very low cost.

Fidelity screwed up somewhere in 2013. Not the first time Fidelity has done that.

Vanguard's retirement fund beats out all 3 of Fidelity's in that time frame.

If you exclude 2013, all 4 funds track similarly.

Worst performing fund in this time frame return yields ~ 8% annually.

Notice most expensive cost fund isn't performing best. It performed the worst in both scenarios.

 

[demosthenes]

I have a situation, I'm 40, losing my job in a couple of months and getting about 20k severance (after taxes). I have a 6 month emergency fund, a healthy IRA & brokerage vanguard accounts with mostly overall index type stuff (VOO/SPY/VTSAX/VTIAX). Do I just dump it in VTSAX/VTIAX and call it a day? Or do I keep it in savings and then add it to vanguard on monthly installments? Should I put it in bonds due to my age? (thinking face)

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I would savings account it until I had another job. Even if you think you'll get another job quickly.

After that, if you don't touch any of it, I personally would drop 15k into my VTSAX and play with the other 5k for vacation or house upgrades or something.

 

[Auros01]

Thanks for the analysis. I need to go back and see if my employer is using one of those specific Fidelity funds.

 

[Keyboard]

I'll admit that even my analysis is flawed as I think investors should look at 10 year time frames.

If you read descriptions on individual index funds, they specifically say you hold investments there for 10+ years or longer.

A target date reduces volatility, so that the money will still be there when that date arrives. Investors do not have to worry about adjusting percentages from time to time.

 

[Galkinator]

Hey guys,
I'm going to invest (1st time in my life) in cannabis related Canadian stocks.
I narrowed it down to 2 options so far - Canopy ($TWMJF) and Aurora ($ACBFF).
Any of you invested in something similar? I'm probably gonna go with about $3K first investment, but I dunno if I should split it between the two or focus on 1 stock for now and when I save some more invest in the other one.
Another option is HMMJ which looks promising.