| Turning 26yrs in Jan / retirement situation advice |
|
|
|
|
|
calbeach
Full Member
Cash: $ 16.20
Posts: 80
Joined: 12 May 2010
Location: USA
|
In mutual fund, higher risk leads to higher reward primarily in technology sector.
|
Wed Dec 15, 2010 7:00 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
quote:
Never mind about the tax question for the taxable account, I just noticed coaster's post about paying taxes yearly and also on capital gains when you sell.
I'll expand on it a bit for you. An Index Fund is unmanaged, ie there is no manager buying/selling shares thru-out the year to change the make-up of the fund - if it is the SP500 Index it is what it is. So there are no annual capital gains, the fund grows tax-deferred unless you sell something - and then you pay the 15% MAX cap gains tax on your profit from that sale.
|
|
Wed Dec 15, 2010 8:15 pm |
|
|
Darga19
Contributing Member
Cash: $ 9.05
Posts: 44
Joined: 10 Dec 2010
Location: Metro Detroit
|
quote:
Originally posted by oldguy
I'll expand on it a bit for you. An Index Fund is unmanaged, ie there is no manager buying/selling shares thru-out the year to change the make-up of the fund - if it is the SP500 Index it is what it is. So there are no annual capital gains, the fund grows tax-deferred unless you sell something - and then you pay the 15% MAX cap gains tax on your profit from that sale.
So an index fund is the way to go here? What are some potential fund recommendations for someone in my position?
Also, is this something simple enough for an investor with my experience level to get involved with? I don't mind doing some research and keeping an eye on things, but I'd like to avoid making day-to-day checks and adjustments if possible, and like I've mentioned, I have my 401k and I'm planning a target fund for my Roth, but that and what I've learned on here the past few days is really the extent of my investing knowledge.
|
|
Wed Dec 15, 2010 9:17 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
quote:
I have my 401k and I'm planning a target fund for my Roth, but that and what I've learned on here the past few days is really the extent of my investing knowledge.
Yes, an index fund or a target fund. Two good index funds are the SP500 Index Fund and the Total Market Index Fund - they get roughly the same results. The SP500 is the 500 major US companies, the 'Total" is the 7000 NYSE companies. The 500 make up about 80% of the value of the'Total' market, that is why they perform about the same, ie they almost are the same.
And a far-out Target Fund is also about the same - the 2050 is mostly an index - later as you approach 2050, the allocation will be shifted towards bonds.
As for checking daily - no need to check it ever - invest incrementally and let it grow.
|
|
Wed Dec 15, 2010 9:48 pm |
|
|
Darga19
Contributing Member
Cash: $ 9.05
Posts: 44
Joined: 10 Dec 2010
Location: Metro Detroit
|
|
 |
|
quote:
Originally posted by oldguy
Yes, an index fund or a target fund. Two good index funds are the SP500 Index Fund and the Total Market Index Fund - they get roughly the same results. The SP500 is the 500 major US companies, the 'Total" is the 7000 NYSE companies. The 500 make up about 80% of the value of the'Total' market, that is why they perform about the same, ie they almost are the same.
And a far-out Target Fund is also about the same - the 2050 is mostly an index - later as you approach 2050, the allocation will be shifted towards bonds.
As for checking daily - no need to check it ever - invest incrementally and let it grow.
Good to know. I think we're going with the Vanguard Target 2050 or 2045 when we start our Roth with $3k in February or March.
Do the SP500 or the Total have minimums to start investing? Or does it depend on where you go? Since we're going with Vanguard I'd sort of like to keep it all in one place if it's feasible to do it that way...
Also, is it still wise to go this route if you're expecting to have to withdraw from your taxable account? I understand your ideas and philosophy at this point, but it's sort of based on the fact that you'd need to withdraw in an emergency (small % chance) as opposed to expecting to have to withdraw (high % chance) with an approximate timetable in mind already. And that timetable is much sooner that 20-30 yrs, you know? i.e. the market might be down which would lead to an unfortunate sell.
On the other hand, the amounts withdrawn would be incremental also and the rest could still compound...so I can see both sides of the equation.
I'd say hopefully my question isn't dumb...but I don't really believe in dumb questions!! 
|
|
Thu Dec 16, 2010 1:06 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
|
|
|
quote:
Vanguard I'd sort of like to keep it all in one place if it's feasible to do it that way...
Yes, I would keep it in one place - easy to do these days, each company provides all services.
quote:
Also, is it still wise to go this route if you're expecting to have to withdraw from your taxable account? I understand your ideas and philosophy at this point, but it's sort of based on the fact that you'd need to withdraw in an emergency (small % chance) as opposed to expecting to have to withdraw (high % chance) with an approximate timetable in mind already. And that timetable is much sooner that 20-30 yrs, you know?
I always use long term products and then manage my way around our short term needs - I seldom leave money sitting in 'dead' accounts. Eg, if we planned on a new house in a couple years, I still keep the money invested. Then, when needed, if stocks are high I sell some, if stocks are low I borrow the money, etc. When I can borrow at low rates and keep our money invested, I usually pick that option - and it has worked well for us.
|
|
Thu Dec 16, 2010 3:42 pm |
|
|
Darga19
Contributing Member
Cash: $ 9.05
Posts: 44
Joined: 10 Dec 2010
Location: Metro Detroit
|
quote:
Originally posted by oldguy
I always use long term products and then manage my way around our short term needs - I seldom leave money sitting in 'dead' accounts. Eg, if we planned on a new house in a couple years, I still keep the money invested. Then, when needed, if stocks are high I sell some, if stocks are low I borrow the money, etc. When I can borrow at low rates and keep our money invested, I usually pick that option - and it has worked well for us.
This makes good sense.
I definitely plan to open a taxable account after the Roth when we can. Regardless of when or how it's used, it seems to be a smart idea to invest in something for non-retirement in addition to the retirement accounts.
|
|
Thu Dec 16, 2010 3:57 pm |
|
|
Darga19
Contributing Member
Cash: $ 9.05
Posts: 44
Joined: 10 Dec 2010
Location: Metro Detroit
|
|
|
|
quote:
Originally posted by coaster
This is one place I'll disagree with oldguy. As with diversification in assets, I also think diversification in money managers and also diversification in account custodians is a good idea. I don't want all my assets under one roof. It's almost inconceivable Vanguard's roof would fall in, but it's not totally impossible something could happen. Whether you'd lose all your money is statistically so minute as to not take into account I suppose, but other things could happen, such as underperformance or mismanagement.
This is an interesting idea...although it might take some of the simplicity out of the equation...only one website to visit vs multiple lol...it is definitely a good point.
quote:
Originally posted by coaster
Darga, my take on your approach is that you would enjoy being an active manager of your wealth-building program, and so I personally think you'll find a target fund much too boring. 
I'm lazier than I seem! LOL. If a target fund, with me doing minimal work on a day-to-day basis, can accomplish similar results as relentless adjustments and trading/buying/selling/researching/rebalancing, I'll be perfectly happy with boring. Although I also realize that there will be greater growth opportunities associated with good research and timely moves. 'You get out what you put into it' is good advice for anything.
**EDIT**
If I were to select a target fund now, can I make changes to that in the future? For example, I buy into the Vanguard Target 2050 for my Roth and then in 2 years I decide to more involved and choose some other funds for myself instead. Can I buy out of the target fund, and keeping the money in my Roth, buy into other funds? Obviously I'd want to do that with no penalties...and do it before 59 1/2...
|
|
Thu Dec 16, 2010 8:48 pm |
|
|
Darga19
Contributing Member
Cash: $ 9.05
Posts: 44
Joined: 10 Dec 2010
Location: Metro Detroit
|
quote:
Originally posted by coaster
But, ya, you can start with one and change your mind later. You've got a lot of stuff going on in your life now and the near future. Simple now is not a bad thing.
That's what I was thinking...
|
|
Fri Dec 17, 2010 1:19 pm |
|
|
Darga19
Contributing Member
Cash: $ 9.05
Posts: 44
Joined: 10 Dec 2010
Location: Metro Detroit
|
General question: my 401k is made up of a variety of stock 'types'...large cap growth, large cap value, small cap growth and value, international, etc.
What does small/mid/large cap growth and value mean? I know large/small/etc is like the size and worth of the companies within (right?) but what are growth and value exactly?
|
|
Fri Dec 17, 2010 1:23 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
|
|
|
The small/mid/large is roughly defined by the capitalization, ie the total value of a companies stock - small <$2b, mid is $2B to $10B, and large is >$10B.
Growth and value - growth stocks grow faster than than similar stocks in the same industry (due to using cash for growth rather than paying dividends, management focus on growth, etc). And value stocks are perceived to be cheap relative to their own price history, relative to other stocks, relative to book value. Ie, investers think that they are 'on sale' and ripe. OTOH, they could be cheap because thet are about to go bk?
IMO, you'll do way better by avoiding uncompensated risk and using index funds - that way you don't need to sort value from growth, cheap from overpriced, failing from booming - that is mostly a trader's game, investors don't need it.
quote:
I'm lazier than I seem! LOL. If a target fund, with me doing minimal work on a day-to-day basis, can accomplish similar results as relentless adjustments and trading/buying/selling/researching/rebalancing, I'll be perfectly happy with boring.
Lazy is good - becoming wealthy is a slow boring process. When index funds were invented, joe sixpack blindly stuck his money there and left it alone - and beat 85% of the professional money managers. At the time, Warren Buffet said "the smart money became the dumb money".
If you crave excitement, pull out $10K and play corn futures, options, individual stock picks etc. Two things - it will cut your temptation to play with your core investments - and it will show you that while you are busy trading your $10k, your 'boring core money' quietly out yields the $10k.
|
|
Fri Dec 17, 2010 3:52 pm |
|
|
Darga19
Contributing Member
Cash: $ 9.05
Posts: 44
Joined: 10 Dec 2010
Location: Metro Detroit
|
|
|
|
quote:
Originally posted by oldguy
IMO, you'll do way better by avoiding uncompensated risk and using index funds - that way you don't need to sort value from growth, cheap from overpriced, failing from booming - that is mostly a trader's game, investors don't need it.
Well...come to think about it...I really haven't selected any individual funds within my 401k. The only thing I've selected is 'Agressive' and '16+ years to retirement'. The goalmaker thing has done it from there. Do I have the option to change what funds I have? I haven't looked into changing anything in this regard. Here are the Funds listed for my acct:
1. Large Cap Value/LSV Asset Management Fund (28%)
2. Large Cap Growth/Neuberger Berman (28%)
3. Small Cap Value/Kennedy Capital Fund (12%)
4. Small Cap Growth/Boston Co. Fund (12%)
5. International Blend/Artio Fund (20%)
First off, are these funds good? Second, what do I look for? What are the key factors when choosing?
**EDIT**
OK, so I see that I have to shut off Goalmaker and I can select from some other funds. They have Target 2010 thru 2050 (actually 2040 seems to have done the best over the past 10 years...), they have S&P500, SA Oakmark Equity & Income Strategy..........??????????? lol.
When looking at 10yr/since inception, some of these others appear to have done better than the funds I currently have. But again...I'm not sure exactly what to look for.
|
|
Fri Dec 17, 2010 4:19 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
|
|
|
quote:
1. Large Cap Value/LSV Asset Management Fund (28%)
2. Large Cap Growth/Neuberger Berman (28%)
3. Small Cap Value/Kennedy Capital Fund (12%)
4. Small Cap Growth/Boston Co. Fund (12%)
5. International Blend/Artio Fund (20%)
Ya, 100% stocks - 80% US stocks, 20% intl is a good allocation. In general I avoid the managed funds and use unmanaged index funds, over time that gives you an extra 1% due to no management fee. The index averages 11%, a manager has to make 13% (in that same market) to pay himself and to net 11% to you. And it's very difficult for him to get 13%/yr, over 30 yrs, out of an 11% market. A 'good' manager may beat the market for 5 yrs, then a different mgr becomes the 'good' mgr for the next 5 yrs - rather than always searching for the 'good' mgr, just buy the index.
Off subject - several posts ago you mentioned a large tax refund - you could fill out a W4 at work to get rid of that - then you would have that money auto-deposited into your Roth starting 15 months earlier. I adjust withholding so that I owe a few hundred in April, I make sure that I never get refunds. (the amusing ones are people who purposely get huge refunds and then pay HR Block an extra $50 to get a flash refund - of their own money that they overpaid all year?? LOL - who thinks like that?)
|
|
Fri Dec 17, 2010 5:16 pm |
|
|
Darga19
Contributing Member
Cash: $ 9.05
Posts: 44
Joined: 10 Dec 2010
Location: Metro Detroit
|
|
|
|
quote:
Originally posted by oldguy
Ya, 100% stocks - 80% US stocks, 20% intl is a good allocation. In general I avoid the managed funds and use unmanaged index funds, over time that gives you an extra 1% due to no management fee. The index averages 11%, a manager has to make 13% (in that same market) to pay himself and to net 11% to you. And it's very difficult for him to get 13%/yr, over 30 yrs, out of an 11% market. A 'good' manager may beat the market for 5 yrs, then a different mgr becomes the 'good' mgr for the next 5 yrs - rather than always searching for the 'good' mgr, just buy the index.
So...my funds are managed funds then? Would you keep these the way they are or change to the SP500 index in exchange for some of the LC stocks? That's an index fund with a much lower expense ratio I notice, but the performance looks questionable...? I'm really not sure what to do here...specific suggestions and reasons for them would help.
You saw the other available funds above. Would using them be worth it even though I'd have to cancel using Goalmaker?
Do index funds get rebalanced automatically, or do they need rebalancing?
quote:
Originally posted by oldguy
Off subject - several posts ago you mentioned a large tax refund - you could fill out a W4 at work to get rid of that - then you would have that money auto-deposited into your Roth starting 15 months earlier. I adjust withholding so that I owe a few hundred in April, I make sure that I never get refunds. (the amusing ones are people who purposely get huge refunds and then pay HR Block an extra $50 to get a flash refund - of their own money that they overpaid all year?? LOL - who thinks like that?)
I've gotten pretty large tax returns back the last couple of years becuase of mortgage interest, but this will be the first year we're married filing together. We did not adjust our withholding so I expect the return to be large. However, I want to wait until it's all said and done to see what happens becuase it will give a good picture of what to expect for the near future, at least until we have kids, so we can adjust witholdings at that time.
Also, a tax factor I have to consider is my side business. I have to file a Schedule C and 1099s for myself, and I have to 1099 my band members because I'm paying my them as if they're contract workers...so that also comes into play. I usually try to save 25% of gig money but even with deductions I will still end up oweing at least a little bit, so I want to cover that. I don't want to pay in April. Part of me likes getting a big return because it forces us to save for large home improvement projects and such. Although I know Uncle Sam is getting my interest rather than me getting it which is dumb on my part, I'm stubborn in that I don't want to expect to owe anything.
And the HELL with H&R Block...what a ripoff. I have an accountant who's a friend of a friend, and is also a musician so he knows the ins and outs of that as well.
|
|
Fri Dec 17, 2010 5:50 pm |
|
|
oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
|
quote:
Do index funds get rebalanced automatically, or do they need rebalancing?
No rebalancing needed - they are fixed - eg, the SP500 Index Fund is made up of a fixed ratio of those 500 stocks, a manager has the fiduiary responsibilty to keep that mix, ie he cannot buy/sell stuff.
quote:
I'm stubborn in that I don't want to expect to owe anything.
LOL - I'm equally stubborn in making certain that I always owe in April. If I ever get a refund it will be becuz of a poor projection on my part.
|
|
Fri Dec 17, 2010 6:04 pm |
|
|
|
