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Retirement-Era |OT| How to Invest For Retirement

Oct 25, 2017
245
#1

Investing Primer (What's a stock anyway?)

This section will hopefully give you a clear understanding of terminology you'll come across in this thread as well as why we give the advice that we do. Most things here will not be fully technically discussed because it's not really relevant to understanding how investing works in this context. Onwards!

STOCKS AND BONDS

Stock
You've probably seen symbols representing companies before (like GOOG or APPL, etc.) when reading about anything to do with investing. These companies have divided up the ownership of the company into something called 'stock' (or 'shares' or 'equity'). Buying stock means that you are purchasing partial ownership in that company. Generally speaking, the cost of one share in the company is dependent on the value of the company. The general concept here is to buy shares in companies, the value of the company increases (share price goes up), and then you can sell your shares. You make money because each share is now more valuable than when you bought it.

Historically, stocks have outperformed most other investments over the long run but tend to be more volatile.

Bond
Bonds are based around debt. You (an investor) loan money to some entity (usually governmental or corporate) for some particular period of time at a particular interest rate. At the end of that period of time you will get your original loan back. Bonds are generally used by these entities as a way of raising cash. Bond ownership can be traded around between people in much the same way as stocks, which is what we'll be doing here. You'll most likely be buying shares in a bond fund which will be a big collection of a variety of bonds. It's very important to understand the mechanism underlying the value of a particular bond.

Let's say interest rates are at 5%, and a $1000 bond is available at that same 5% interest rate for some arbitrary number of years. Not very interesting to purchase that bond when looking at current rates since you can get that same 5% interest anywhere.
Ah, but some time has now passed and interest rates have dropped to 4%. But that bond is still paying out at 5%! Investors will now purchase this bond, driving the price up until the effective rate on the bond is 4%. (It depends on the term of the bond, but let's just say the price of the bond is now $1100 even though you'll still just be making the 5% interest on the original face value of $1000 and will get $1000 back at the end of the term.)
The inverse happens if interest rates go up, say to 6%. That 5% bond is now less attractive so the price will DROP until the effective rate is also 6%. So maybe the price goes down to $950, even though you're still getting 5% on the original face value of $1000 ($50 per year) and will get $1000 back at the end of the term.

To be clear, this means that bond prices will move inversely with the movement of interest rates.

The interest rate of the bond are generally based on the credit quality of the issuer and the duration of the bond.

Bonds are considered to be less volatile but as a tradeoff will generally give lower returns than stocks. People will hold bonds as part of their portfolio to cushion their losses when the market goes down.

Thoughts on Bond Allocation
Cyan's Thoughts
Y2Kev's Thoughts
Keyboard has a further post on bonds

ETFs AND MUTUAL FUNDS
This will cover the different formats in which we can actually purchase these stocks and bonds. But first!
WHAT'S A FUND?
As I mentioned near the beginning, you can buy shares in individual companies like Google and Apple, but for reasons that I'll get into later that's not something that we would recommend 'round these parts. A fund, broadly speaking, is a grouping of stocks or bonds (or maybe even some other stuff!) that are selected based on some rules set by the fund manager. Maybe the fund only holds stocks based on precious metals, or only mid-sized tech companies with annual growth of X%, or any other fun rules they think of.


Mutual Funds
A mutual fund is a pool of money gathered from a large number of investors in order to invest it in all the stuff that we've talked about so far. A mutual fund is actually technically a company that you're buying ownership in and you get to share in the performance of the mutual funds investments, proportionate to how much of the mutual fund you own. There are tens of thousands of mutual funds available to choose from.

Things to pay attention to here are fees. A funds expense ratio is the total of any advisory fees and administrative costs that the fund has. You'll also want to look out for mutual funds that have a front-end load or back-end load. A load is a commission or sales fee applied upon the purchase or sale of shares in the mutual fund. Ideally you're looking for a no-load mutual fund.

Some funds may also charge penalties for early withdrawals from the fund (i.e. you have to keep your money in the mutual fund for some minimum amount of time before you can sell). The relevant differences vs. a normal stock for us here are as follows:
  • You can purchase fractional parts of mutual fund shares. If you buy a normal stock you cannot do this. So if you've got $50 and the value of the share you're trying to buy is $45 you're going to have 'leftovers' of $5. For a mutual fund you can spend exactly what you have available.
  • Mutual funds trade only once per day. This happens at the end of the day once the markets have closed. This means that any trades you put in will only be executed once the markets have closed and the value of the mutual fund shares have been calculated. No day trading for you!
  • Many mutual funds have a minimum buy-in amount that can range from hundreds to thousands of dollars.

ETFs
An Exchange-Traded Fund (ETF) is somewhat similar conceptually to a mutual fund in that that ETF owns the underlying assets and you are going to be purchasing shares in the ETF. The difference here is that ETFs are traded just the same as if they were shares of GOOG or APPL or any other company. If your brokerage charges a commission to buy those sorts of shares, it's going to be the same thing for ETFs. As a comparison against mutual funds
  • You can only buy whole shares. If you've got $100 and are buying shares valued at $40 you're going to have $20 leftover. This can be slightly annoying to some people to see this money sitting there unused.
  • ETFs are traded throughout the day. As long as the markets are open your orders will be executed as soon as possible. This difference between ETFs and mutual funds probably won't be material to you here since we'll be making very few trades.
  • You can buy as little as one share of an ETF, no minimum buy-ins here.

WHAT DO WE SUGGEST (AND WHY)?

The Basics
We've discussed above about what funds are, and now the question is, which funds should I get? You may have noticed John Bogle up there in the thread banner. Our strategy will be based around a simple, easy-to-follow, strategy advocated by Mr. Bogle, the founder of Vanguard. The core of this strategy is index funds. An index fund is a fund that simply passively follows an index such as the S&P 500 or even the total stock market by holding shares in companies in proportion to that company's value/. These funds aren't trying to do anything fancy in order to beat the market, they just 'buy the market' and try to follow their chosen index as closely as possible. These leads to lower fees on the fund as they don't need to employ as many managers or research analysts.

This all leads us to the Bogle Three-Fund Portfolio, through "the majesty of simplicity". All you NEED are domestic stocks, international stocks, and bonds. You can mix these as you like but there's no messing about with allocating to technology stocks, or energy stocks, or whatever else. The benefits of the simplest portfolio possible that just follow the market as follows

  • Diversification: Easily get access to 10,000+ stocks
  • Contain every style and cap-size
  • Very low cost
  • Low turnover
  • Easy to rebalance
  • Never underperform the market
  • SIMPLICITY!
Your portfolio doesn't literally have to be 3 funds but keeping it as simple and low-cost as possible is the key to success. The specific funds and whether they are ETFs or mutual funds will depend on your country, but the concepts will always be the same.

Another possibility is using a single fund, called a target date fund. A target date fund is a fund that automatically shifts its allocation to stocks and bonds as time passes based on the concept that the closer to retirement you are, the more bonds you will want in order to stabilize your portfolio. The thing is that not everyone's risk tolerance is the same even if they're targeting the same year for retirement. A target date fund is ideal if you want to be completely hands off but most people here have leaned towards handling their own simple portfolios as it gives more control over your allocations.

What to do when your options are limited
Sometimes you may end up being limited in your fund choices if you're in a company managed 401k or something similar like that. In this case, we have to make do with the best that we can. Maybe you don't have access to a total market fund in which case you would ideally be able to make it yourself by combining some large-cap/mid-cap/small-cap funds (these are categorizations of companies based on their value). Maybe you don't have a generic international fund available so you have to build your own out of International Developed and International Emerging funds. In these situations you can always make a post here about what funds are available to you and we can help point out what the best options are.

HOW DOES THIS HELP ME RETIRE?
Investing in the stock market can be a scary thing, we've all heard horror stories about people losing their life savings in the stock market and similar nightmares. The unfortunate truth is that the average person is going to find it almost impossible to build up enough cash to retire if they're sticking to bank accounts giving out a piddly 0.05% in interest. You HAVE to invest to make the most of your money. What we aim to do is invest in the most acceptably risky manner possible.

Capital Gain
This number varies from analyst to analyst but according to some people you can expect an average return per year of 7% - 10% if you're invested in the total market. This is obviously far superior to what you get from a bank account. This chart will perhaps show it in a more visual manner


So, most of the growth of your money will come from this growth in the market which has gone on for over 100 years (with a variety of ups and downs) called capital gain. The power of compound interest cannot be overestimated and I suggest you read up on it and its application to the stock market.

Dividends
Luckily, there's also another source of income in the stock market. A dividend is a distribution of a portion of a company's earnings to the shareholders, generally as a dollar amount per share held. A company will give or not give out dividends based on a variety of reasons that I won't get into but if you hold the entire market you will be getting a certain percentage of dividends. In most cases you can choose to either automatically reinvest these dividends back into the fund that they came from, or to take them as cash. This automatic reinvestment is commonly called a DRIP (Dividend Reinvestment Plan).

Some people like to be dividend investors and specifically buy into companies that regularly give out dividends and increase those dividends on a regular basis. They aim to live solely off these dividends and never sell their actual investments. Most people here will not recommend this strategy but if you want to read more about how this works check out this link https://www.investopedia.com/articles/02/010902.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186

Fees
This is something that we bang on about all the time here because it's so incredibly important. Fees can ABSOLUTELY DESTROY your returns without you even noticing. Take a look at this chart


Over 10 years on just $10,000 you lose an insane amount of money due to high fees. Just think if you were to have ~1% fee on $100,000 over 30 years. You could be losing in the range of $200,000 over that time which is absolutely shocking. You can see the effect by checking out this calculator.

Many of the funds recommended in this thread will have fees in the range of 0.02% to 0.5%. While the high end of that range is not great, you should know that anything at 1% or higher is absolutely unacceptable. It sounds like a small amount, but over a number of years it absolutely has an impact.

HOW TO PLAN YOUR WAY TO RETIREMENT AND BEYOND
Now that we know all about what these things are and what you should buy, it's time to get into specifics regarding WHEN to buy and what mix of things you should buy.

There are several points of view about how to allocate to domestic/international/bonds and there's no real right answer. But what we can talk about is the reasoning behind these different points of view.

First off, you have to make a guess at what age you want to/can retire. You obviously don't know this exactly, but it's a good number to keep in mind to drive other decisions. Most people will agree that from your 20s through to some period of time before you plan to retire you'll want to put the majority of your investments into stocks. Stocks have historically outperformed almost everything else and are your best bet to get the biggest stockpile of wealth as fast as possible. It is pretty much guaranteed that there will be market crashes in this period of time and your wealth will plummet, but it's important to remember that you aren't retiring in those times, so just stick it through until the market recovers and you'll be fine.

It's fairly well understood that during this time bonds are a way of managing risk. A good number of people these days are going 100% into stock during their accumulation period and accepting that they'll be able to mentally handle those periods when the market falls 20%+. Other people will advocate holding a rising number of bonds as you age, perhaps starting with 10% at 30 years old and going from there. The closer you get to retirement age, the more stability you'll want in your portfolio. The first 5-10 years after retirement are the riskiest as a market crash right after you retire is no fun at all. More bonds lends itself to less volatility but also lower returns. Your choice here is your own to make.

The core point here is to decide on what your 3-fund (or X fund) portfolio is going to be and what percentage is going to be allocated to each fund, and then stick with it! Consistency is key in these situations. Make a plan for when you'll allocate what percentage to what fund and follow it. Following the trend of the day has the potential to lead to disaster and you don't want to get caught up in any panic selling.

While there is some debate about this as well, a lot of people will recommend rebalancing around once a year. Rebalancing is making sure that your funds are still at the percentage of your portfolio that you decided on. If you decided on 50/50 domestic and international but international stocks have gone on a tear, you may be out of balance such that things have gone to 40/60. The thought here is that it's kind of an automatic way of selling high and buying low.

The Trinity Study and Bill Bengen
A vast majority of people in the financial independence and amateur retirement planning community base income in retirement off of these sources. There's a lot of information in here but basically these were studies done to determine what would be a safe withdrawal rate from a retirement portfolio that contains stocks and thus grows and shrinks irregularly over time. The rule of thumb out of these studies is that you can plan on a 4% withdrawal rate from your portfolio in your first year of retirement. Subsequently you would change your withdrawal rate based on inflation in each year. These numbers are based on the portfolio lasting for a retirement of 30 years. These numbers will need to be adjusted for varying retirement periods.

In a recent (August 2017) AMA on Reddit, Bill Bengen answered some questions on his 1994 and subsequent papers on safe withdrawal rates. He actually discussed it as now being the "4.5% rule" for a 30-year timeframe with that percentage trending downwards the longer your retirement will be, but never going below 4%.

You can use this rule as a guide to figure out how much you need to have invested before you retire. If you think you'll need $50,000/year you'll need to have 1.25 million saved up.

It's important to remember that this is just a rule of thumb that has held up well over quite a long period of time. You should definitely evaluate how much you're withdrawing every year of your retirement depending on what the markets are doing and how much you're actually spending in retirement.


HOW DO I BUY THIS STUFF?
The specifics differ from country to country but I can hopefully give a short overview here. You're going to want to sign up for a brokerage, which give you access to the stock market and mutual funds. Different brokerages will charge different fees for a variety of things and I suggest reading into the country-specific sections to see what you should be looking for.

Signing up will probably involve linking bank accounts and sending documentation to prove that you are who you say you are.

After that, buying is actually pretty simple, especially for mutual funds.

Equity/Stock
My interface for buying equities looks like this.


Choose your symbol and your market. The only order types you should be interested in is Buy or Sell. Then you say how many shares of that stock you want to buy or sell. The price type (or order type) is interesting for equities. I suggest you read Investopedia's information on these which include Market, Limit, Stop, and Stop Limit. Generally we'll be trading in very active funds which will be able to fulfill trades very quickly with a very small spread (difference between buy and sell prices) so I'm mostly using Market orders. You can see in the Level II Quotes area on the bottom right how many shares are available for buying and selling at this moment and at what price.

Mutual Funds
This is the interface for buying mutual funds


As with equities, you just chuck in a symbol and if you're buying or selling and how much you want to buy. As I've discussed before you can see that this is No-Load fund and that it has initial buy-in of $1000 with subsequent purchases having a minimum of $100. I talked about that Dividend field earlier. And that's it for mutual funds!

WRAPPING IT ALL UP
I'd like to end with a review of some concepts that you'll want to keep in mind throughout your investing life. This has been partially adapted from a post by Keyboard.

1. Keep investing simple or KISS (Keep It Simple Stupid).

  • Diversifying reduces risk.
  • Investing just needs 3 parts:
    • Domestic Stocks
    • International Stocks
    • Bonds
  • You can add a 4th part like REITs but they are not necessary if you invest in Total Stock Market or own a home.
  • If you still don't understand nuances of bond funds, investing in TBM is still OK, just not optimal. There are worse things you can do.
2. Past performance does not guarantee future returns.

Some people may advocate one percentage over the other for stocks. In the end, it won't matter that much.

  • Nothing wrong with average. Sure, some active investor may shove it in your face one year saying how much he/she made but over long term only few achieve better returns than the market's.
  • Plus you don't have to deal with stress and worry about what's going on with the daily market.
3. Do not time the market (stocks).

  • No one can predict what the future will hold outside of bonds. If people did, then they would be jailed for insider trading.
  • Invest now. Invest early. Let reinvestment of dividends + power of compounding + time balance out the negatives.
4. Keep costs low.

  • Look at expense ratios. General recommendation is 0.20 or lower. These costs will eat into your own earnings long term if you don't pay attention.
  • Stick to no-load index funds whenever possible.
  • Front-load + Back-load funds will eat into your buy and sell costs. If you're currently invested in one, get out ASAP.
5. Invest as a way for savings + protection against inflation.

Money sitting in bank accounts is losing value as inflation (2.0%-2.5%) outpaces savings rate. Put non-emergency money to work.

6. Don't follow trends, they'll lead you to disaster

Maybe large-cap funds are the new hotness this year but I direct you to look at this chart to see that there are no constant winners
 
Last edited:
OP
OP
TheTrinity
Oct 25, 2017
245
#2
How to Invest for Retirement - USA (All Credit to Piecake)

Why

The average social security benefit is $1,234 a month, or about $14,800 a year. If that is your only source of income you will be living in poverty and be unable to meet unexpected expenses, which are likely to increase as you get older and frailer.

You need to invest if you want to have a comfortable retirement. You might say, why not just save and stick my money in a savings account? The problem with that is is that is a sure-fire way to lose money. The interest rates from savings account due not keep up with inflation. That means that if you put all your money in a savings account you will have less money when you retire than you actually put into that savings account. It doesnt make a whole lot of sense.

Remember that I said that the average social security payout is 15k a year? That doesnt sound too good, right? 48k a year sounds much better, right? Well, if you retire at 65 and live until you are 95, you will need 1 million dollars to have a yearly income of 48k. Now, the math is a bit more complicated than that, but the moral of the story is that you will need to invest in stocks to actually make anywhere close to that amount. Putting all of your money into bonds and savings accounts is simply not going to cut it.

For most people, that also means that all of their investment should be aimed at saving fo retirement.

You might ask, isn’t investing in stocks risky? Just look at the 2008 crash! I would be screwed if I had my money in the stock market! I will get into this further later on, but I am not going to lie. There is a reason why you get the best returns in the market. And that is because It is risky, but there are ways to mitigate that risk.

How

You might be thinking, but I have no idea how to invest in the stock market! It all seems so complicated to me and so much work! Luckily, there is a way to invest in the stock market that requires absolutely no work, no skill, and no thinking. The best part is, is that this method will, statistically, give you the best return as well!

This method is low cost index funds, specifically US Total Stock Market and Total International Market.

What are Index funds? Well, index funds, instead of being picked by a manager (aka human being), they passively follow an index. What this means is that if you invest in the two funds above you will passively follow the entire world stock market at an insanely low cost.

But I want to beat the market! Well, good luck with that. There is a lot of data out there that basically shows that that is a pipe dream that only the really lucky or the really skilled and knowledgeable (my guess is like 1% of the population) can do. Basically the data shows that actively managed funds consistently lose to their index (some win, obviously), and that no actively managed fund can consistently beat their index year after year. What this says to me is that actively managed funds pretty much beat their index on luck because none of them can consistently beat it. Moreover, there is absolutely no way to ‘pick’ the right actively managed fund for this year because they simply invest in way too much stuff.

http://www.businessinsider.com/index...d-funds-2013-6

http://www.nerdwallet.com/blog/inves...-market-index/

The other avenue, of course, is individual stocks, but that is far more risky, takes a lot more time, and why would you want to take that chance with your retirement savings? Hell, even Warren Buffet hasnt beaten the S&P 500 (An index of the US 500 biggest companies) in the last 5 years

http://www.bloomberg.com/news/2014-0...irst-time.html

Another reason to invest in index funds is fees. Fees are a huge huge deal because they do not take a percentage of your gains, they take a percentage of the total amount that you invested. Over time, that is a huge deal. For example, if you invest 5k a year for 40 years and you get a return of 7% you will end up with a balance of 1.075 million. However, if you invested in a fund that has an expense ratio of 1% and a turnover rate of 100% (which equals about 1% expense ratio), the average for an actively managed fund, you will have 637k after 40 years. COngrats, you just lost 438,000 to fees

Therefore, I really think the only logical conclusion is to invest in Index funds

Investment Strategy

Thanks to the magic of compound interest, the earlier you start, the better off you will be (math is a bit more complicated than I am suggesting). For example, in the example above, you only had to invest 200k to achieve that 1 million dollars because you started investing really early. If you wait until you are 40 and only have 15 years to invest, you will have to invest 558,000 to achieve the same amount. Investing early will save you 358,000 dollars.

Starting early, gotcha. Now how should I go about investing? I am glad you asked! Personally, I am a fan of investing two funds, the Total US Stock Market and the Total International Stock Market, because it invests in everything and has the lowest cost. I invest 60% of my funds into the US and 40% in the International fund, just my personal preference. I do not invest in bonds because I am still young and I think the biggest aim right now is growth, and stocks are by far the best way to do that. Further, you only lose money if you sell, so why should I give a shit if the market crashes in 10 years? It will bounce back.

Once I am 10 years or so from retirement I will start investing in Bonds though. The reason for this is that bonds are a lot less volatile than stocks, which means that if a stock market crash comes along, they won’t less nearly as much, if at all any, as stocks (hell, they might actually go up). Why is this important? Well, if you turn 65 and don’t have a job, you are basically living off of your investments. If a stock market crash occurs right after you do that, you do not want to be forced to sell your stocks to pay for your living expenses. You would be selling at a HUGE HUGE loss. It would be much better to sell your bonds, because like I said, those are far less volatile so you will either take a small loss, no loss, or a small gain

As for what bond funds and what percentage of my portfolio, I am in favor of 50% Total US Bond market and 50% TIPS fund. Total bond fund should be self-explanitory, but I like the TIPS fund because it is inflation protected. Stocks themselves are inherently a hedge against inflation so moving into bonds you are losing quite a bit of that. Investing in TIPS takes care of that. As for the percentage of bonds compared to stocks, that really depends on how much you have invested. If you already have more than enough money invested for retirement, well, I would go heavily invested into bonds (like 80-100%). If you still need more money, you are obviously going to need to take on more risk, i.e. stock (so 40-60% stock maybe?)

There is another investment strategy, and that is holding your age in bonds, which basically means that you will increase the percentage of your bond holdings as you get older. I think that is way too conservative though since I think the purpose of investment is growth and you only need bonds until time stops being such a fantastic hedge and you need another one (bonds). Really up to you though and how much risk you can handle, because geting freaked up by a crash and selling all of your retirement low is FAR FAR FAR worse than taking a conservative approach to investing for retirement.

Retirement vehicles

What about those 401k and Roth IRA things I keep hearing about? I am glad you asked! Those are tax advantage vehicles that your employer can offer (401k) or that you individually set up at a broker like Vanguard (Traditional IRA and Roth IRA).

They are tax advantaged because you will not have to pay capital gains on any of the money invested in these vehicles. That is pretty huge because you won’t have to pay 15% of your gains to the government (15% of a gain of 800k is quite a bit) and you won’t have to pay capital gains on the dividends that you get from the funds every quarter.

As for income tax, they work a bit differently. If you invest your money in a 401k and traditional IRA you will not pay income taxes now, and your taxable income for the year will be lowered by how much you invest. So if you invest 15k into your 401k, your taxable income will lower by 15k. You will pay income tax on it when you start selling and taking money out. This benefits people who have a high income tax now, but will have a lower income tax when they retire

For a Roth IRA, you will pay income taxes now, but won’t pay them when you retire and start taking money out. This benefits people who have a lower tax bracket now and will have a higher tax bracket when they retire. It also is a hedge against uncertainty. Who the hells knows what the tax rate will be in 40 years? It could be a lot higher. Well, if you invest in a Roth IRA, you won’t have to worry about that.

This is a bit more complicated since it involves tax strategies, but another benefit of 401ks and traditional IRAs is that because it lowers your taxable income that might mean that you will become elligible for tax credits that will lower your bill even further. Moreover, if you have student loans and are on the income based repayment plan, investing in the above will also lower your monthly payments.

So, which one should I choose? Well, the rule of thumb for most is:
- 401k up to the employer match (401ks usually have higher fees and shittier funds)
- Fully fund Roth or traditional IRA (5,500)
- Fully fund 401k (17,500, i think)

Like I said, you get a 401k from your employer, and you can set up a IRA at a place like Vanguard or Fidelity. After that, put the funds I mentioned above in them, or at least ones that are close. Below are links to the funds that I talked about.

Vanguard Total Stock Market Index Fund

Vanguard Total International Stock Index Fund

Vanguard Total Bond Market Index Fund

Vanguard Inflation-Protected Securities Fund Investor Shares(look into this fund when you are nearing retirement)

So yea, in conclusion, start investing early and do not be afraid to invest. You can make it as simple or as complicated as you want it to be, and the method I mentioned above is stupidly simple that will give the greatest return for the vast majority of people. If you don’t invest for retirement, you will definitely regret it when you get older.

How to save and actually get money to invest

Well, this one is tricky because it takes discipline and long-term planning. The best way to save money is to first figure out how much you actually spend. Programs like Mint are very useful because it just automates everything.

Once you figure out how much you spend you need to create a list of priorities. Is eating out super important to you? Are video games super important? Cable TV? that smart phone? Once you make that list, you can figure out what you definitely should cut back on. because if having cable TV is only somewhat important to you, and your retirement is small, well cut it. It might be nice to have it, but it is definitely not worth it if it means that you will be living in poverty when you retire.

For things super important to you, say like video games or reading, there are obvious ways to cut back by borrowing books from the library and only buying video games that go on sale and stop buying games that you never play.

All of these savings might seem small, but they add up. That 5k a year means investing 418 dollars a month. If you cut cable and stop buying 2 games every month you are basically half way there.

And don't be this guy:

Originally Posted by Randolph Freelander

You have no idea how stupid people can be with money. For example, I know of a forum where a lot of people spend thousands of dollars every year on video games they have no intent of actually playing. Meanwhile, they haven't put the first dollar into a retirement fund.

Suze is telling those people to stop being dumb.

As for more serious savings, those come down to two things: car and home. Want to buy a fancy new car at 5% interest? Well, dont. Thats stupid. Making yourself poor by buying an expensive car or house that you can barely afford is about the dumbest thing you can do because besides wiping away all of your savings, the interest rate on both of those things will make it a lot more expensive than the sticker price.

The location of your home compared to your work also matters a lot. To drive 1 mile its about 60 cents. If you live 20 miles away from work you will be spending about 8.5k a year on gas and other car expenses. Thats ridiculous.

This is a good site that gives a bunch of strategies to save serious money

http://www.mrmoneymustache.com/

You might think he is a bunch of BS, or whatever, but that doesnt change the fact while you might not be able to retire in 10-15 years, you will save a lot of money if you adopt some of his suggestions.


How to Invest For Retirement (Canada)

This thread is quite US focused so I figured it may be useful to cover the investment vehicles available to us as well as the best options for investing.

The general strategy is the same over the whole world so we're still going to be concentrating on index investing, just in slightly different ways. Your first step is to read the first post in this thread and then come back here.

BROKERAGES
For reasons I'll go into later, you want a brokerage that gives you the best deal on ETF trading.
A quick google will give you quite a few options for discount brokerages in Canada. Questrade is a good choice as is RBC Direct Investing. Mostly what you're going to want to do is look at their fees and decide which one will work out to be the cheapest for your style of trading. If you do infrequent large buys, then a flat fee may be best for you. On the other hand, Questrade only charges commission when you sell ETFs, so you can buy as many ETFs as you want for free. Questrade is probably the best choice overall, but just make sure to do your own research.

INVESTMENT VEHICLES
TFSA - TFSAs are nice things to have. Gains that you get inside a TFSA (capital gains/dividends) are not taxed, even when you withdraw them. At the time of this posting the annual contribution room is $5500/year. That dollar amount is set to increase in $500 increments in step with inflation so you can expect an increase to $6000/year probably sometime in the next 2-3 years. Any unused contribution room will roll over indefinitely which is one of the big advantages that we have over the American system.

RRSP - As opposed to TFSAs, RRSP contributions are tax deductible. No income within the account is taxed (capital gains, dividends, etc.). The 'downside' of RRSPs is the opposite of the TFSA. Any withdrawals are taxed as income at your current tax rate when you withdraw them. There are some exceptions to this such as the Home Buyer's Plan and the Lifelong Learning Plan, but you can read up on those on your own. The contribution limit is 18% of your income up to a maximum (currently around $26000 and increasing with inflation), with unused room rolling over, same as the TFSA. The general idea is to contribute to an RRSP during your prime earning years when you're in the highest tax bracket. You then withdraw during retirement when your income is lower thus paying a lower amount of tax then you would have.
You can look here for a good description of when you SHOULD contribute to your RRSP http://www.theglobeandmail.com/globe...rticle8916348/

IMPORTANT NOTE: You should realize that you can defer claiming your RRSP deductions for as long as you want. If you contribute $20,000 in 2016, but you think that your tax rate is going to go up significantly in 2017, you may wish to claim your deduction for 2017 instead. See here for further information http://wheredoesallmymoneygo.com/def...-income-years/

Less Important Note: If you are holding any US stocks directly, or own shares in a Canadian ETF that DIRECTLY holds US stocks, then you will probably want to hold them in an RRSP. There is a tax treaty between the US and Canada for registered accounts that means you will not get taxed by the US on dividends generated by stocks in your RRSP whereas you will get taxed if those stocks are anywhere else. It is for this reason that I would recommend holding XAW instead of VXC. The differences are relatively minor (10-15k) over 25+ years but worth doing if you're starting off.

----------------------------------------------------------------------------------------------------

Obviously, the ideal situation is to max out your contributions to both your RRSP and TFSA to take advantage of the tax sheltering. This may be difficult for some people but I think it's a very good goal to aim for. After that you're going to be moving to taxable accounts.

If you are unable to max out both, my recommendation is to max out your TFSA first until your yearly income is putting you in a higher tax bracket than what you think you'll be in during retirement. Then you'll want to switch to maxing out your RRSP first to take advantage of the tax deductions. This can be tricky since you don't really have any idea what your tax rate or income is going to be when you're retired. You also have to consider that having a high enough income from RRSP withdrawals could make clawbacks happen on any Old Age benefits you may be entitled to.It's also worth noting that many institutions will charge a small annual fee for having an RRSP account. For example, Scotia iTrade will charge $100/year unless you have more than $25,000 in accounts with them.

Investment Vehicles in Retirement
TFSA - Once you're retired (or really any other time you feel like) you can withdraw however much you want from your TFSA, or nothing at all if you like. The brilliant thing about withdrawing from a TFSA is that it doesn't count as income. You can take out whatever money you want and still be eligible to get full Old Age Pension from the government. How great is that?

RRSP - At age 71 your RRSP is forcibly converted to an RRIF and you must remove a certain percentage per year. Luckily the new budget has changed this to only 5.28% now. This is good news as anything you withdraw from an RRIF is taxable income and if you have enough stashed in there the government is going to be taking some Old Age Pension clawbacks.

INVESTMENT OPTIONS
Refer to the first post in this thread for reasoning here. I'm going to be strictly sticking to the same index fund/bond strategy as Piecake. There are a couple differences for us Canadians.

First, we have very few mutual funds with a reasonable MER as compared to the states. This is why I was specifying that you should try and get into a brokerage with low ETF fees. My thinking aligns with Canadian Couch Potato so I'm going to be recommending his model portfolios for the simplest fire and (mostly) forget investment strategy.

Canadian Couch Potato Model Portfolios

Tangerine Investment Funds
I can see utility in the Tangerine one fund deal if you're supremely uninterested in investing, but that laziness will cost you over 4 times as much in fees. It's also, in my opinion, heavily overweighted in Canadian stocks. It's an unfortunate reality that Canada is very undiversified when compared to the US. Finance, Energy, and Materials make up an absolutely massive part of our market. Your portfolio is going to be having a bad time if something unfortunate happens in those sectors (http://www.canadiancapitalist.com/se...ed-portfolios/).

So, that's pretty much off the table.

TD e-series Funds
If you don't have a ton to contribute, this is a pretty good option. You'll have to make TD Direct Investing your brokerage as these funds are not available outside of TD.
Since this is based on mutual funds you don't have to worry about transaction fees since mutual funds are free to purchase and sell.

If you take a look at the actual model (e-Series Model Portfoilios) you'll see five different styles of investing. I recommend going even beyond the aggressive style while you're still young (say below 30) and not getting any bonds. Then slowly phasing in more bonds as you get older. This is a very general strategy used for any kind of investing.

This option is great if you want to contribute a small amount into your investments every paycheck and you're up for rebalancing your portfolio yourself every year or so.
If that's the style of investing you're interested in, you'll do just fine sticking with these funds for your whole lifetime.

Vanguard ETFs
Vanguard is great and we have to be super thankful that they saw fit to come to Canada and they've slowly been giving us better and better options over the years. ETFs have the lowest management fees available and are thus the best option if you can handle doing very infrequent, but large, contributions. Most brokerages are going to charge you about $10 flat for every trade you make so you want to get as much use out of that 10 bucks as possible. You have to have a large amount of money in ETFs for the very low management fees to even out the costs of making trades which is why Couch Potato recommends having at least 50k before doing this option.
I wouldn't go that extreme as you can just do less transactions but you'll still want a good chunk.

He has a great spreadsheet that you can download from here http://canadiancouchpotato.com/2012/...unds-and-etfs/ to compare whether you should go for ETFs or the e-series funds. Make sure you ignore the $100 fee that he's put on there if you don't have an RRSP or the fee has been waived by your brokerage.

I make the same recommendations as per bond allocation as the e-series fund above.

IMPORTANT NOTE: Note that you can be much more active in purchasing ETFs if you use Questrade since all their ETF purchases are free. It's important to remember that if you sell you will be charged the normal commission. Hope that helps the canadians out a little bit.
 
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OP
OP
TheTrinity
Oct 25, 2017
245
#3
CYAN’S POST

Originally Posted by Piecake

Oh, I agree that the purpose of bonds is to blunt loses. I just don't see the point of blunting loses and reducing gains when I still have 35 years left until retirement. I mean, what do I care if my portfolio absolutely tanks 10 years from now due to a huge market crash? I still have 25 years left to retirement. Thats plenty of time for the market to bounce back. Therefore, I think it makes sense to invest for the most growth possible.

I think time is all the hedge you need until time stops being such an excellent hedge. That is when I plan to start heavily investing in bonds.
Well... does your ability to take on risk suddenly fall off a cliff at 10 years before retirement? Or does it slowly increase over time as your time horizon decreases, as you approach the time that you'll actually need the money?

Or, here's another way of looking at it. The reason you want to switch to a bond mix (let's call it 60/40) ten years before retirement is to blunt the risk of a massive loss right before retirement, when you'll need the money. But what if that massive loss happens right before your planned switch to the 60/40 bond mix? Your ability to make up the loss will be severely curtailed by the switch in asset allocation, with all those bonds in your portfolio. Of course, this isn't as disastrous as a massive loss just before retirement. But it's still really bad. So maybe you should hedge that by switching to, say, a 70/30 bond mix a few years before your planned 60/40 switch. But wait! What if a market crash happens right before your planned 70/30 switch? Well, again, not nearly as bad as the crash before retirement or the crash before the 60/40 switch, but still kind of bad. Maybe you should hedge it by switching to 80/20 a few years before the 70/30 switch. You see where this is going. Suddenly we've arrived at the standard, mainstream notion of slowly increasing your allocation to bonds as you get closer to retirement.

Now, it's important to be aware of the costs as well as the benefits. By slowly allocating to bonds, you are also slowly reducing the expected return of your portfolio. But what that buys you is a slow decrease in variance over time. An increased ability to withstand downturns, that goes up in tandem with your vulnerability to downturns.

Pie, I'm not going to tell you that you personally have to allocate to bonds. You're clearly comfortable with a high level of risk. But this is the argument for it: over time, your ability to withstand risk goes down. It's prudent to lower your risk as your ability to withstand it decreases.

And I'm very uncomfortable with advising people in this thread to not invest in bonds at all. Sure, that's a thing you can do if you can deal with the risks due to a high income or not caring or maybe needing to take higher risks in order to get your portfolio to where you want it... but it's not for everyone. Most people will find that a stock/bond portfolio, with the allocation to bonds increasing over time, works better for them as far as risk/return go.

Originally Posted by dbztrk

Thanks. I've done an 80/20 split between CREF stock and real estate. Maybe at some point i'll be able to work up the nerve and do 100% CREF stock.
If someone advises you to take more risk than you're comfortable with, and all they know about you is your age and that you're somewhat risk-averse, you should feel free to ignore their advice. I say this not to belittle the people giving the advice, who I'm sure are well-meaning and are trying to help, but to point out that the advice can't possibly be based on your personal situation.

It's not even conventional wisdom or a standard piece of advice. I don't know why so many of the posters here are highly aggressive investors, but the typical rules of thumb are far more conservative than "100% stocks until age 50." The old, common rule of thumb as far as asset allocation was to allocate your age % in bonds, and the rest in stocks (e.g. at age 30 you're 30% in bonds and 70% in stocks). This has the benefit of being straightforward and simple, and of automatically increasing your bond allocation as you age. Many in the investment world now consider this allocation to be too conservative, given that life expectancy is higher than it used to be and will probably continue to rise. Some advisors offer "your age minus 10%" or "your age minus 20%" as new rules of thumb (e.g. at age 30 you're 20% bonds, 80% stocks for the former, or 10%/90% for the latter). Though again, remember that these are generic rules of thumb and may not be appropriate for you.

After my first paragraph above, it'd be pretty hypocritical of me to give you specific advice, but what the hell: based on my vast knowledge of your personal situation I think you're probably better off with a more conservative approach.
 
OP
OP
TheTrinity
Oct 25, 2017
245
#4
Y2KEV’S POST

Originally Posted by Piecake

Moreover, holding a 80/20 allocation - meaning that you will be buying stock on a market crash - will, generally, get you less of a return that a 100% stock portfolio because that 20% bond was and is a drag on your theoretical return.
No, I'm not suggesting it won't reduce your overall return in any given year. It obviously will. But it won't materially reduce your return and over the long haul it will reduce the number of years you take a loss on your portfolio as well as blunt losses in years you do take a loss.

Please see this research:
https://personal.vanguard.com/us/ins...io-allocations

.6% incremental return is not worth the risk.
 
Oct 25, 2017
3,768
#7
Thanks for making this. I wanted to make it if Pie didn't come over but the loss of OT hurt my chances of getting all that information together.

I hope Randolph comes over.
 
OP
OP
TheTrinity
Oct 25, 2017
245
#8
Yeah, I've been PM'ing him on Gaf but now the registration seems to be closed and he's asking about some secret code? Anywho.
 
Oct 25, 2017
68
#9
So glad to see this thread back! Always one of my favorite threads in the OT.

And just got an email notification at work that we're switching our 401k provider to Fidelity. I'm hoping they have similar funds as my prior employer because they essentially offered institutional index funds with crazy low expense ratios.
 
OP
OP
TheTrinity
Oct 25, 2017
245
#10
So glad to see this thread back! Always one of my favorite threads in the OT.

And just got an email notification at work that we're switching our 401k provider to Fidelity. I'm hoping they have similar funds as my prior employer because they essentially offered institutional index funds with crazy low expense ratios.
Yeah, I recall Fidelity being one of the better ones out there. What kind of options do you have with your current provider?
 
Oct 25, 2017
68
#12
Yeah, I recall Fidelity being one of the better ones out there. What kind of options do you have with your current provider?
They're Vanguard Admiral funds, so they're not bad. But the Fidelity funds I had access to before had expense ratios as low as 0.02%, which seems insane.
 
Oct 25, 2017
9,601
#13
Whoops, didn't see this before my 401K post.

If deductions are cut to 2400 I'll definitely need to begin looking into personal portfolio with Vanguard.
 
Oct 25, 2017
569
#20
I was just setting up my 401K for the first time and then I suddenly remembered that this thread existed
on the other site
and searched it up here. I'm young and stupid, so thank you so much for the OP. Learned a lot over the last hour. Gonna take all this stuff seriously
and buy Jordans.
 
Oct 25, 2017
25
#21
What is the best way to incorporate an ESOP into a long term savings plan? My company only matches 1k in our 401k, but they give us anywhere from 3% to 5% of our pay in stock every year. We vest at 20% each year, so it take 6 years to fully vest in your first round of stock. Our stock is very pricey at the moment, it's over 3k/share now, and has more than doubled from this time last year. That's all great until I look at what that means for the next round of purchases. Assuming the price stays the same I'm looking at between 2 and 3 shares of stock, and I work in a volatile industry. So, I feel like the company will be giving me stock at or near our peak for the next couple of years, and there will be considerable dropoff once the market turns.

Meanwhile, I'm maxing out my 401k contributions. I have some cash that I would like to invest as well, not much, but I can add to it every month.

My concern is that I don't know how to incorporate the ESOP into my long term plans. Should I just ignore it, and whatever I have at the end of the day is just what I have? I don't have any agency over it, and I'm only about 1/3rd vested at the moment. I'm somewhat risk adverse, so I don't want to take on more risk than is necessay. It's just hard to determine what's necessary when my 401k and ESOP are within a 3k of one another. If the ESOP takes a dive, I would lose almost half of my retirement savings.
 
Oct 25, 2017
2,630
#22
I'm already investing in my 401k, but if I want to save money that I want to grow over the next 5-10 years and then take out (like for grad school or a house) that can also function as an account for the super long-term, what's the best approach? My Fidelity advisor mentioned an ETF (Exchange Trade Fund) or Fidelity Contrafund (I know, it's not exactly IRA or 401k as per topic).
 
OP
OP
TheTrinity
Oct 25, 2017
245
#27
What is the best way to incorporate an ESOP into a long term savings plan? My company only matches 1k in our 401k, but they give us anywhere from 3% to 5% of our pay in stock every year. We vest at 20% each year, so it take 6 years to fully vest in your first round of stock. Our stock is very pricey at the moment, it's over 3k/share now, and has more than doubled from this time last year. That's all great until I look at what that means for the next round of purchases. Assuming the price stays the same I'm looking at between 2 and 3 shares of stock, and I work in a volatile industry. So, I feel like the company will be giving me stock at or near our peak for the next couple of years, and there will be considerable dropoff once the market turns.

Meanwhile, I'm maxing out my 401k contributions. I have some cash that I would like to invest as well, not much, but I can add to it every month.

My concern is that I don't know how to incorporate the ESOP into my long term plans. Should I just ignore it, and whatever I have at the end of the day is just what I have? I don't have any agency over it, and I'm only about 1/3rd vested at the moment. I'm somewhat risk adverse, so I don't want to take on more risk than is necessay. It's just hard to determine what's necessary when my 401k and ESOP are within a 3k of one another. If the ESOP takes a dive, I would lose almost half of my retirement savings.
Yeah, the long vesting time is a bit of a bummer. Generally, what was recommended in the thread was to sell off any employer stock as soon as you can unless it really just is a small portion of your savings. I certainly agree with you that you don't want the stock of one company to be making up 50% of your portfolio. Generally the question to ask yourself is, if you had $X (where x is the current value of your employer stock) in free cash would you buy that stock with it? Probably not. So yeah, do what you can to get it out as soon as possible.

I'm already investing in my 401k, but if I want to save money that I want to grow over the next 5-10 years and then take out (like for grad school or a house) that can also function as an account for the super long-term, what's the best approach? My Fidelity advisor mentioned an ETF (Exchange Trade Fund) or Fidelity Contrafund (I know, it's not exactly IRA or 401k as per topic).
An ETF is really just a way of trading so that doesn't matter too much. And from a quick readover of the Contrafund it sounds like it's actively managed so it probably doesn't have the most efficient expense ratio.
Anywho, a shorter timeframe like 5-10 years means that you don't want to be too risky. But it really all depends on how much risk you want to take. You can probably get something like 1.5-2% in something very safe like a high-interest bank account or CDs but that may be a bit stodgy for a 5-10 year timeframe. I'd probably recommend an index fund that's a mix of bonds/stocks, leaning towards bonds. There's a bunch of low-expense Target Date Funds out there that can give you 60/40 or 70/30 bond/stock ratio.
 
Oct 25, 2017
6,208
North Jackson High
#28
There was a guy from our fund management company at work yesterday talking about retirement strategies. He definitely recommended 401k over other venues (gee, i wonder why), but i've maxed out two years in my IRA so far because the taxes frankly don't bother me at this point.

I guess the logic is to transition from IRA to 401k when you pass the income level that you want to hit for retirement? I'm pretty close to that right now but still underneath.

And take my 3% match from my new job, obviously.
 
OP
OP
TheTrinity
Oct 25, 2017
245
#31
There was a guy from our fund management company at work yesterday talking about retirement strategies. He definitely recommended 401k over other venues (gee, i wonder why), but i've maxed out two years in my IRA so far because the taxes frankly don't bother me at this point.

I guess the logic is to transition from IRA to 401k when you pass the income level that you want to hit for retirement? I'm pretty close to that right now but still underneath.

And take my 3% match from my new job, obviously.
Well ideally you could max them both out every year (assuming your income is 70k or below). There's a whole bunch of trickery you can do with American retirement accounts that I'm not experienced with.
I'm also wondering if you mean Traditional IRA or Roth IRA as these are very different beasts.

In any case, the guy is most likely right. If your company offers any sort of matching on your 401k you should definitely be using it as it's completely free money.
r/personalfinance on Reddit has some very handy flowcharts on this topic that you can see here
https://www.reddit.com/r/personalfinance/wiki/commontopics

 
Oct 25, 2017
25
#32
Yeah, the long vesting time is a bit of a bummer. Generally, what was recommended in the thread was to sell off any employer stock as soon as you can unless it really just is a small portion of your savings. I certainly agree with you that you don't want the stock of one company to be making up 50% of your portfolio. Generally the question to ask yourself is, if you had $X (where x is the current value of your employer stock) in free cash would you buy that stock with it? Probably not. So yeah, do what you can to get it out as soon as possible.
Thanks for the advice! Of course, the obvious answer is the one I overlook. I'll have to dig into the details tomorrow, and see what options are available to me. I guess I'll need to check in with my accountant as well. I'm not sure what tax consequences I will face if I move that money around.
 
OP
OP
TheTrinity
Oct 25, 2017
245
#33
Yeah, I believe you have to hold it for a year once it vests to keep it at Long Term Capital Gains tax rate or it will be taxed as regular income. May or may not be worth it depending on if there are dramatic changes in the stock price during that year.
 
Oct 25, 2017
1,542
Canada
#35
Thanks for re-posting this, was going to do it tonight if it wasn't done. My idea was for it to be called How to Invest for Ret|ERA|ment. (lol)

My RRSP is currently all in an index fund, one of vanguards, hedged for the CAD$. It's done really well over the past year and few months. Can I just keep dumping my contribution amounts into this over the next 30 or so years? Because that's pretty much my plan right now.
 
Oct 25, 2017
25
#36
Yeah, I believe you have to hold it for a year once it vests to keep it at Long Term Capital Gains tax rate or it will be taxed as regular income. May or may not be worth it depending on if there are dramatic changes in the stock price during that year.
Sounds like my accountant needs to know about it either way. Seems like my company is painting us into a corner with the 6 year vesting period. Couple that with the recent gains, and it's really difficult to exit our positions.
 
OP
OP
TheTrinity
Oct 25, 2017
245
#37
Thanks for re-posting this, was going to do it tonight if it wasn't done. My idea was for it to be called How to Invest for Ret|ERA|ment. (lol)

My RRSP is currently all in an index fund, one of vanguards, hedged for the CAD$. It's done really well over the past year and few months. Can I just keep dumping my contribution amounts into this over the next 30 or so years? Because that's pretty much my plan right now.
Curious which fund it is? I didn't know Vanguard Canada had one that covered everything. Generally you need 2 to get Canada and Global ex-Canada.
Other than that, yeah keep doing what you're doing. But should max out TFSA as well if possible, and then of course move on to taxable accounts when that's maxed out as well.
 
Oct 25, 2017
1,542
Canada
#38
Curious which fund it is? I didn't know Vanguard Canada had one that covered everything. Generally you need 2 to get Canada and Global ex-Canada.
Other than that, yeah keep doing what you're doing. But should max out TFSA as well if possible, and then of course move on to taxable accounts when that's maxed out as well.
It's an ETF. (VSP.TO) I'm very happy with it thus far. Playing it safe, I don't want to fuck around with retirement funds. I've also maxed out my TFSA. Invested most into that same ETF index, and the rest I'm playing with stocks. What taxable accounts do you recommend, because I have some more available to invest.
 
Oct 25, 2017
3,768
#40
Well ideally you could max them both out every year (assuming your income is 70k or below). There's a whole bunch of trickery you can do with American retirement accounts that I'm not experienced with.
I'm also wondering if you mean Traditional IRA or Roth IRA as these are very different beasts.

In any case, the guy is most likely right. If your company offers any sort of matching on your 401k you should definitely be using it as it's completely free money.
r/personalfinance on Reddit has some very handy flowcharts on this topic that you can see here
https://www.reddit.com/r/personalfinance/wiki/commontopics

This image is fantastic!
 
Oct 25, 2017
9,601
#42
Well ideally you could max them both out every year (assuming your income is 70k or below). There's a whole bunch of trickery you can do with American retirement accounts that I'm not experienced with.
I'm also wondering if you mean Traditional IRA or Roth IRA as these are very different beasts.

In any case, the guy is most likely right. If your company offers any sort of matching on your 401k you should definitely be using it as it's completely free money.
r/personalfinance on Reddit has some very handy flowcharts on this topic that you can see here
https://www.reddit.com/r/personalfinance/wiki/commontopics

I think this needs to be more flow based. For example, I don't qualify for Roth due to income limit so do I go for traditional or just up my 401? Or I could just keep 401k at match, but dump into ETF/Vanguard.
 
Oct 26, 2017
3,907
#43
I think this needs to be more flow based. For example, I don't qualify for Roth due to income limit so do I go for traditional or just up my 401? Or I could just keep 401k at match, but dump into ETF/Vanguard.
If you're over the Roth income limit, ideally you'd go traditional IRA and do a Roth conversion ("backdoor"), which is a stupid loophole. Beyond that and investment limits, the only differences between a traditional IRA and a 401(k) lie in convenience/selection/fees, which are specific to your institution(s).

You definitely want to max out the tax advantaged accounts first, though, before just investing outside of those options (unless your employer has an exploitative 401(k)).
 
Oct 25, 2017
9,601
#44
If you're over the Roth income limit, ideally you'd go traditional IRA and do a Roth conversion ("backdoor"), which is a stupid loophole. Beyond that and investment limits, the only differences between a traditional IRA and a 401(k) lie in convenience/selection/fees, which are specific to your institution(s).

You definitely want to max out the tax advantaged accounts first, though, before just investing outside of those options (unless your employer has an exploitative 401(k)).
From looking, the fees aren't exorbitant and we pick between target funds, bonds and a select crop of individual funds. I'll likely just up my 401k contribution until my car/student loans are done (2ish years) then move that into an IRA or brokerage.

I miss when I had an employee stock purchase program. I got into it way to late and missed out on some real incredible gains (up 50% already).
 
Oct 25, 2017
707
#45
Great to see this thread back! I was considering making it last night but I'm fucking lazy so I'm glad someone else beat me to the punch.

Everything I learned about investing I learned online. If you're nervous about low-cost indexing (for whatever reason) or need to convince a boneheaded friend that it is a good idea, I would recommend Freakonomics' "The Stupidest Thing You Can Do With Your Money" podcast.

Great interviews with folks from the industry, including Jack Bogle.
 
Oct 25, 2017
21
#46
Definitely adding this to my watch list, loved this thread at the old place.

I know Vanguard is the favorite, but Fidelity and Charles Schwab also offer low fee index funds as alternatives.
 
Oct 25, 2017
1,482
#47
So if I wanted to start from scratch and get into Index Funds like the OP suggests, am I right in reading on that site that the minimum investment is $3,000?

I want to look into this more over the weekend and dont have a much time at work to read it in depth, so if it is somewhere else on the website I apologize.
 
Oct 26, 2017
3,907
#48
So if I wanted to start from scratch and get into Index Funds like the OP suggests, am I right in reading on that site that the minimum investment is $3,000?

I want to look into this more over the weekend and dont have a much time at work to read it in depth, so if it is somewhere else on the website I apologize.
Minimum investments depend on the specific funds and brokerages themselves.
 
Oct 25, 2017
707
#49
So if I wanted to start from scratch and get into Index Funds like the OP suggests, am I right in reading on that site that the minimum investment is $3,000?

I want to look into this more over the weekend and dont have a much time at work to read it in depth, so if it is somewhere else on the website I apologize.
You can buy an ETF instead for much cheaper.

Buy ETFs until you can afford to buy into a fund directly. I would say sticking with ETFs is fine until you have $10000 - after that you want to get a Vanguard Admiral fund.