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Brownsfan2k5
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I am currently in the military so I do not receive a match on my TSP(401k). So instead I max out my Roth IRA every year. But I also invest in rental homes. But lately I have ran into a bit of cash and am trying to decide if I should buy another home or open up a taxable investment account through Vanguard. Which would be smarter?

On a second note-- my roth is invested through Vanguard in the Target retirment date. Should I move capital out of there and invest in the S&P instead to avoid the waist in bonds?
Post Mon May 06, 2013 11:45 pm
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oldguy
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quote:
I am currently in the military so I do not receive a match on my TSP(401k). So instead


The match isn't the only benefit of a TSP. I retired before matches were invented - and I had about a million in my 401k when I retired. Ie, you may want to rethink the TSP - the Roth limits you to about $11k/yr plus you have to prepay the tax on it.

quote:
invest in the S&P instead to avoid the waist in bonds?


If you are using Vanguard Target 2055 it is probably almost all equities, maybe only 5% bonds? The SP500 & the Target2055 returns should be about the same.
Post Tue May 07, 2013 12:06 am
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Brownsfan2k5
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Yes me and my wife are limited to $11000 but we also don't pay very much in taxes(I am currently deployed to a tax free zone) if any. So I see the benefits of a Roth. But if I keep contributing to retirment advantage accounts then when I retire from the military at 40 I will not be able to touch any of it and will have another 20 years of work ahed of me. Where as if I contributed to a taxable investment account I could save up enough so that when I retire at 40 I could live off my pension and what's in that taxable investment account and move into one of my paid off rentals and just let my roth keep growing and live the good retirment life. Correct?

Also, the target 2055 is at 10.5% this year and the S&P is at about 15%
Post Tue May 07, 2013 9:15 am
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blixet
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The composition of Vanguard's Target 2055 is:

Total Stock Market Index - 63.1%
Total International Stock Index - 26.9%
Total Bond Market Index - 10%

Considering the fact that the TSM Index is approx. 70% similar to the S&P 500, you currently can only attribute about 44% of your returns to the perfomance of the S&P 500.

That you now see a significant return variance from that benchmark compared to your more broadly diversified portfolio is what has been termed "frame of reference" risk. Check the link for more info on that.

http://jimlorenzen.wordpress.com/2011/02/08/how-to-measure-success-the-right-way/

If you ignore the S&P 500, you'll be less tempted to chase returns as your portfolio under-performs an an irrelevant and misleading benchmark and more likely to be invested in your diversified portfolio when it out-performs the S&P 500.

This is how diversification works. If something isn't trailing and making you want to dump it, you probably aren't fully diversified. Unless you possess the incredibly rare ability to out-guess the market, you are bound at some future point to find yourself having sold low/bought high on a regular basis.

Fully funding the Roths when you are in a low/no tax situation is pretty much a no-brainer. There wouldn't be much sense in losing that opportunity vs. a taxable account.

On the other hand, the tax-deferred vs taxable makes a little bit less sense in the low/no tax environment, especially if your taxable investments are very tax-efficient.

Your idea to be diversified in terms of tax treatment of your accounts makes sense to me, particularly in light of your stated goal of retiring early.

Information is more valuable sold than used – Fischer Black


Last edited by blixet on Tue May 07, 2013 2:51 pm; edited 3 times in total
Post Tue May 07, 2013 2:11 pm
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