| New to the Retirement game...HELP! |
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SweetHonesty
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| New to the Retirement game...HELP! |
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I'll try to give some history.
Single
Savings: 6 months of salary
401K: contribute the maximum each year
have to roll over a 401k From previous job (around 9,000)
Need to start a IRA ( NOT qualified for a ROTH)
I know I need to read and try to educate myself on retirment/saving but any information would be helpful.
How would one go about to start setting up anything for retirement? I met with a Morgan Stanley rep on Tue. He wants to roll over the 9,000 I have into something called American Funds (gave me a pamphlet on it) and said "this is the best for you"....question is...is it REALLY the best thing for me? I know I need to roll over the old 401k, but rolling it over into something safe would be fine for me now just to get it fixed. When it comes to the core of saving for retirement, I dont mind some loss/risk as long as it can be made up.
What kinds of questions would I need to ask this guy? Or a financial planner in general? I know I need to start...how, where, or who to use is so overwhelming.
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Sat Feb 11, 2006 6:08 pm |
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Jaszbo
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Is it best for you or for him? If you just one single fund and not have to worry about funds, rebalancing...etc and you are really lost then I would look at some of the life cycle funds. Basically it's a fund of funds, in which one single fund selects multiple managed or index funds for a target retirement year. For instance, say you want to retire in the year 2045 and you like vanguard, then you should check out vanguard's target retirement 2045.
I would personally go with a discount broker like vanguard, Fidelity or T. Rowe Price. In your situation I believe Fidelity might be your best bet as they will have classes and seminars that can probably teach you a lot if you are kind of lost.
You are spending so much money on your retirement, and if you don't educate yourself in the long run you are going to hurt yourself.
Also having 6 months of salary saved is a little high, unless you have an unsecure job. It's recommened 3-6 months of "expenses", but I think going with 3 months of salary is a good figure. It's a shame that you don't qualify for the Roth IRA and personally it's one thing I do not like about the Roth IRA.
If you want to learn about mutual funds and what kinds of questions and you are lost pick up a copy of mutual funds for dummies and it will even tell you what kind of questions to ask.
If you want just post the exact fund (ticker symbol) and I'll go through it with you.
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Sat Feb 11, 2006 7:56 pm |
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KBWFIG
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Have you ever thought about a manged fund?
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Sun Feb 12, 2006 6:09 pm |
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drinkoj
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quote:
2. Amerikan Funds is a lode famlee. The broker or adviser or wotever him be liv from the kommissions him get from wot him sell.
Will someone please translate this?
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Sun Feb 12, 2006 6:45 pm |
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Jaszbo
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quote:
I agree. Six months' living expenses for a single person, three months' living expenses for dual-income couple. But that's a minimum -- no reason you can't have more if you want.
I agree with you also, but just that I would rather see anything over 3 months invested in something like a munipal bond. I've seen even debate over your emergency fund being in a savings account. I think it all has to do with how much in assets you have. If you are making 50k a year and between real estate, funds, savings, checking and other investments have assets over 200k, then slowly your emergency fund isn't as important.
I've just seen people argue that you should never have any money in a liquid account like a savings account, becuase of the rate of return. I personally will always keep 3 months in a savings account. That's just me...
A person I know who I respect and is multipmillion investor doesn't have an emergcy savings account what so ever. He doesn't understand the reason to have an emergency account when he has millions in stocks, funds, real estate and especially when he only spends about 60k a year. He also doesn't believe in life insurance also, since he thinks it's a waste of money and his assets take care of himself. He really isn't a spender, he just keeps reinvesting in multiple things. Then again he is retired and his kids are fully grown, so it is another reason why he doesn't believe in life insurance and an emergency fund for his case.
my point in posting about my friend is that I think everybody has a different situation.
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Mon Feb 13, 2006 1:43 am |
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Jaszbo
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I agree with you completely, but I know many who do not agree. The only problem I have with any real investments as an emergency fund is that you don't want to dip into your bonds or anything when the economy is doing bad. Like in 2002 if you needed emergency money, it probably wouldn't have been the best idea to take away from an investment.
I've also seen debate about the size of emergency fund with those who have a Roth IRA, since you can always withdraw your contributions. I personally always max out my Roth IRA, but I will most likely always keep 3 months in the highest paying savings I can find. Anything over 3 months though I see as wasted money, unless you have no other assets or you are about to purchase real estate or another investment.
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Mon Feb 13, 2006 1:26 pm |
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Martin
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| Re: New to the Retirement game...HELP! |
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quote:
Originally posted by SweetHonesty
I'll try to give some history.
Single
Savings: 6 months of salary
401K: contribute the maximum each year
have to roll over a 401k From previous job (around 9,000)
Need to start a IRA ( NOT qualified for a ROTH)
One important piece of information is missing from this list: How many years do you have left until retirement?
If you time horizon is long (more than 10 years), your choices are easier than if you have only a few years until retirement. The main reason is that over longer periods of time, most asset classes generate the expected return and the fluctuations around the expected return are less important. If you are relatively close to retirement, the fluctuations in various investment options become very important, because you may need to consume your assets before the fluctuations had time to average out.
Assuming that you have over 10 years to retirement, you could consider putting the bulk of your retirement assets in the asset classes with the best long run returns. My information suggests that small cap value tends to be the best bet, but there is a lot of information out there that allows you to form your own opinion.
If you concentrate your assets in a sector like this, you will be taking more risk in the sense that your portfolio will fluctuate more than a portfolio of many different instruments. However, if your time horizon is sufficiently long, you are effectively averaging your returns over many years, which provides something like 'temporal diversification' while hopefully giving you a higher return than a more diversified portfolio.
When researching mutual funds, I look for funds that consistenly outperform relevant benchmarks by a few percent per year. Make sure you are aware of all the fees the fund charges. I would not discount a fund just because of high fees. If they consistently outperform their index net of fees, they may be a good investment option.
As has been mentioned here, commission based advisors tend to have a conflict of interest. They want to sell you the product with the highest commission rate, not necessarily the best product. You may want to consider rolling over your IRA directly to a mutual fund company instead of going through the advisor. Alternatively you could consider paying the advisor a fee for his advice, but do the transactions on your own or through a different broker.
I would stay away from funds with a very narrow focus, e.g. a health care sector fund, if you want to hold this investment for a long time. The reason is that sectors can easily be affected by changing market conditions, the legislative process, innovation, etc. A bucket like 'small cap value' should be big enough that a good fund manager can find decent opportunities.
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Mon Feb 13, 2006 6:30 pm |
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Jaszbo
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Great advice Martin, but that's why I suggested the life cycle funds. These funds are already age based allocation. When you want to retire is the year you pick. For instance if you want to retire in say 2045 and you like vanguard, go with target retirement 2045, it's 88% stocks and each year it slowly reallocates and becomes more conservative the closer you get to retirement. It does reblancing for you.
I'm not suggesting people jump into this fund what so ever, but if I know a person who's completely lost when it comes to investing, then I have to recommend it as the one fund to go with. My investment stragety for retirement might not be what another person thinks is wise, but you really can't go too wrong with a managed fund of funds based on retirement. I think vanguard and fidelity are a little too concervative personally. I like vanguard the best for people who are going to retire years and years from now like the 2045, but for the target income fund I believe T. Rowe Price does a better job at age allocation.
If a person doesn't know what an index fund is, a manged fund, operating expenses, bonds, stocks, REIT, and rebalancing and anything in between and is so confused and is not intrested in learning, then the one solution is going with something that already takes care of it for you. I have a family member who is really bad with money and has no intrest in learning about investments, so I suggested vanguard's target 2045 which is a good fund. When she gets closer to retirement I'll help her create her own porfolio where all she has to do is rebalance yearly, but for now I think it's the best solution for her and a lot of ohter people.
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Mon Feb 13, 2006 6:48 pm |
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Martin
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quote:
Originally posted by Jaszbo
Great advice Martin, but that's why I suggested the life cycle funds.
I agree! It is a sound concept and definitely the easiest way to deal with retirement savings. My comments were not intended to imply disagreement. I was trying to provide a starting point in case SweetHonesty wants to go exploring.
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Mon Feb 13, 2006 7:28 pm |
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SweetHonesty
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Firstly thank you for the responses. Much Appreicated.
To touch on some things.
Savings: 6 months. I just tried and read what I could and most Ive read said its best to have 6. Some Ive even read said 8. Im in a good profession and job (or profession is) secure. In general it just made sense...to have something where you can get money anytime and under any circumstance. You never know..everything can be fine today...change tomorrow.
@ Martin---Retirement: Im only 32...so I guess I got at least another 33 years to go. Sometimes in my profession even after retirement its possible to float...say work 1 or 2 days a week etc....dont know if I will do that yet..as its a long way off.
When you say words like small cap , large cap..etc etc...Im lost. I know its my fault. I know I need to learn about this stuff. Something that they dont tell you is that after you get out of college, you really need 2 degrees: your profession...and how to invest. I dont like the idea of someone say getting $500 of the $4000 I would contribute to a IRA...you multiply that by 30 years and that adds up!!
@Jaszbo--on the Vanguard retirement fund...that sounds interesting. Does it have a good track record?
@Coaster: What is funny about this fund is when the Morgan Stanley rep was saying things...(just basically pointed the pamphlet out to me...espically the chart where it was just going up, up, up..) but NEVER mentioned any type of fee or what it would cost me. Just said " this is the best one for you." This is why Im so weary about trusting people with my money. I know they have to make a living...but in order to even make any money from this..I would have to make back the %5 the Morgan Stanley rep gets...then only after that is when I start to make anything...NEXT question would be ...money I make off of something like this would it be TAXABLE?
In general sometimes its so confusing. You hear about Social Security not being there...then you hear about pensions being restructured...at the end of the day if you are not saving...you might not have much depending on other avenues. Its hard to trust anyone when you dont know much....and with so much out there...where to begin and which one is the best one to choose.
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Tue Feb 14, 2006 1:18 am |
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Jaszbo
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"@Jaszbo--on the Vanguard retirement fund...that sounds interesting. Does it have a good track record? "
In one single anwer I would say NO. Not bad, but not much of a history as neither does the ones at T. Rowe Price or Fidlelity. Now what they are investing in does have a long long long history. Since 2003 it has had a return of 14.08%, but that's it inception. But these funds like I said invest in funds that have been around for a long time. Let me break down what's inside the target 2045 for instance
Here is what is inside this fund
Vanguard Total Stock Market Index Fund - 70.5%
Vanguard Total Bond Market Index Fund - 12.0%
Vanguard European Stock Index Fund - 11.6%
Vanguard Pacific Stock Index Fund -5.9%
Last year it was at 88% stocks and now it's at 87.16%, so as you can see it's becoming more conservative.
Here's the 10year track record for these funds. The 10year average return. These are index funds though, so remember they aren't managed funds. They are a grup of unmanged funds (index funds) all being managed for a retirement acccount for one fund.
Vanguard Total Stock Market Index Fund - 9.16%
Vanguard Total Bond Market Index Fund - 5.81%
Vanguard European Stock Index Fund - 10.19%
Vanguard Pacific Stock Index Fund - 1.46%
I'm not sure if you are familiar with the total stockmarket, but that's the main index fund in this fund at 70% and the past 10 years it's had over 9% return. This includes a crash that lasted for 2-3 yeas. If you look at the total stockmarket historically from around 1926 until now there has only been one time in history that it's had a 10 year negative return and return was I belive less than negative 1%, so for the long term the total stockmarket index is pretty secure. Since the 1992 date of which it was brought to vanguard it's had a return of 10.77%
I word of advice is don't count on pension or social security, if it comes, it's a bonus. The only people I think should count on pensions are government employees, but even then it's just better to plan without it. You can never put away too much. I would look at both Roth IRA and your 401k plan as at least one step in a plan. Good luck to you
My advice isn't to use this fund for your life, but as a one fund to get started until you can make your own decisions instead of having the management team at vanguard decide for you. Unless you think what they are doing is excellent. The management team most likely can do a better job than the average person who hasn't spent enough time learning about investments.
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Tue Feb 14, 2006 1:28 pm |
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Martin
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Here are some clarifications:
Cap = Market Capitalization refers to the value of all outstanding shares of a company. The market capitalization of a company that has issued 100 shares that are currently trading at $5 each is $5x100=$500.
People commonly divide companies into large cap and small cap (and possibly mid and micro cap) by their market capitalization. Everybody has somewhat different notions what is large or small. The Russell indices provide a good starting point. The Russell 3000 consists of the 3000 largest public US companies. The Russell 1000 consists of the 1000 largest one, and the Russell 2000 consists of the 2000 smallest companies in the Russell 3000. The median market cap of the Russell 2000 is typically around $800 - $1000 million. So I would consider anything below about $1bn to be small cap.
The other distinction I was talking about is value vs. growth. Again this somewhat nebulous and there are many ways of looking at it. Here is a simple example: Form this ratio: market cap/total annual sales. It shows how much the market is willing to pay per $ of sales the company had last year. A more value oriented stock will have a lower ratio than a growth stock. In the latter case, people are willing to pay more per $ sales because they expect the sales going forward to be higher than they were last year. They expect sales growth. Growth expectations tend to be unrealistic, which is why growth stocks as a group return less than value stocks in the long run. Of course there are good oportunities in both value and growth stocks, but they tend to be much harder to identify in growth stocks.
I hope this clarifies things somewhat. I seem to remember that the Dummies book on mutual funds explains all of this quite well. Also check out www.fool.com for a good explanation of the terminology and the basics of investing. The lingo is probably the biggest barrier to entry. Once you figure that out, the rest will make a lot more sense.
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Tue Feb 14, 2006 10:46 pm |
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JBendar
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| Retirement Game |
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SweetHonesty:
This is objective information about your retirement goals. There is nothing stable in today's world. So what works today may not work tomorrow. I have found in doing research for over 20 years that there is no sure thing. Anyone can give you an opinion based on their experience with different mutual funds, ETFs, etc. What you have to do is to develop a plan. There are all kinds of retirement calculators and things like that on investment web sites such as Fidelity, Schwab, etc. It might be wise for you to pick up a book on finance. If you need some references, let me know, and I'll help you out. Send me a private message with your requests. I don't want to be overbearing or specific to you, because every individual's circumstances are different. I am semi-retired at the present time (could go back to work if the situation came up). I have been through the ringer, so I can talk to you from experience. There is no profit motive involved. I just like helping younger people out, since I lacked that advice when I was younger. Good luck with your investment objectives, and if you need assistance, just let me know.
JBendar 
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Fri Mar 10, 2006 1:02 am |
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