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Turning 26yrs in Jan / retirement situation advice

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coaster
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quote:
Originally posted by Darga19
I'd say hopefully my question isn't dumb...but I don't really believe in dumb questions!! Confused

The only dumb question is the one you didn't ask but really needed to know the answer. Wink
Post Thu Dec 16, 2010 4:25 pm
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coaster
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quote:
Originally posted by Darga19
I'd sort of like to keep it all in one place if it's feasible to do it that way...

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.

It's more complicated and requires more attention to detail. But oldguy's wealth management approach is also more complicated and requires more attention to detail than many people care to get involved with .... but ... it works. You get out of it in proportion to what you put into it.

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. Very Happy
Post Thu Dec 16, 2010 4:34 pm
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Darga19
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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. Very Happy


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...
Post Thu Dec 16, 2010 8:48 pm
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coaster
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Sure. You can do as much as you want as long as you stay inside the IRA. The IRA is a wrapper; you can put just about anything in there from just about anywhere (OK, that's a bit of hyperbole) so long as it STAYS in there. You can even move it from one investment company to another, or have a whole bunch of IRAs with a whole bunch of companies (though the contribution limits are total for you as an individual, not per account)

But, if you suspect you might want to do that in the future, there's no point in a target fund now. Then you might as well buy some index funds or ETF's (exchange-traded funds) that represent about what asset mix you'd want for right now.

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.
Post Fri Dec 17, 2010 5:56 am
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Darga19
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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...
Post Fri Dec 17, 2010 1:19 pm
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Darga19
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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?
Post Fri Dec 17, 2010 1:23 pm
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oldguy
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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.
Post Fri Dec 17, 2010 3:52 pm
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Darga19
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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.
Post Fri Dec 17, 2010 4:19 pm
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oldguy
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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?)
Post Fri Dec 17, 2010 5:16 pm
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Darga19
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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.
Post Fri Dec 17, 2010 5:50 pm
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oldguy
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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.
Post Fri Dec 17, 2010 6:04 pm
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Darga19
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OK...so say I change my portfolio to this:

1. Large Cap Value/LSV Asset Management Fund (18%)
2. Large Cap Growth/Neuberger Berman (18%)
3. Small Cap Value/Kennedy Capital Fund (12%)
4. Small Cap Growth/Boston Co. Fund (12%)
5. International Blend/Artio Fund (20%)
6. Large Cap Blend/S&P500 Index (20%)

That would keep the 80/20 US/International ratio, and would eliminate some costs, but still keep things balanced, right?

What is the benefit of having LC vs SC stocks? It looks like the Kennedy and Boston have sort of underachieved when compared to their projections. Is it smart to keep these?

So will my portfolio be rebalanced with Goalmaker if I still have Goalmaker funds in it, i.e. the funds I already have?
Post Fri Dec 17, 2010 6:14 pm
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coaster
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quote:
Originally posted by oldguy
becoming wealthy is a slow boring process.
Something too many people don't comprehend. They want to get rich fast. Sure, a few people do get rich fast. But usually impatience goes along with bad decisions and they lose their money instead.

quote:
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.
This is good advice and I can attest to it from my own experience. I've made a big deal here on this board about distinguishing between trading and investing. I do both. I don't let the trading get in the way of the investing and visa versa. I have profits to show on both methods, but my investing gains are roughly three times the trading gains, in percentage points. And in terms of the ratio of gains to involvement, the investing wins hands down by an even greater margin that I can't quantify. I only trade because I find it interesting and challenging. I don't do it to build a retirement nest egg.
Post Fri Dec 17, 2010 6:42 pm
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coaster
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quote:
Originally posted by Darga19
First off, are these funds good? Second, what do I look for? What are the key factors when choosing?

Darga, a great place (the best IMO) to research funds is www.morningstar.com where they have not only ratings/analysis/information on all mutual funds out there available to the public, they also have wonderful knowledgebase/tutorial resources and content so you can learn to use the information effectively. You do have to sign up for at least a free subscription to get at most of the useful content.
Post Fri Dec 17, 2010 6:48 pm
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Darga19
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Maybe switching out both of those managed LC funds for 50+% sp500 would be my best bet. After all...getting wealthy slowly is my goal here, just like you guys have said. And I just read that putting all your LC investments right in the sp500 index is not a bad move. Thoughts?

Those 2 SC funds have a 2star morningstar rating....hmm...
Post Fri Dec 17, 2010 6:52 pm
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