Retirement-Era |OT| How to Invest For Retirement

vypek

Member
Oct 25, 2017
3,867
Yeah, Vanguard won't rebalance between funds you own, but they do have "funds of funds" that are based around certain asset allocations that do get rebalanced to maintain the desired ratio. Target date funds are the most relevant here, but they also have basic balanced funds like 50/50 stock/bond, 60/40, etc.
Thank you!
 
OP
OP
TheTrinity

TheTrinity

Member
Oct 25, 2017
255
Yes, and while I myself and a good number other people here are 100% in stocks I don't want to go so far as to recommend it.
If you've got the timeline to support it, it probably is the 'best' but you're in for a rough ride during any bear markets.
 

Blergmeister

Member
Oct 27, 2017
83
Thanks to a windfall I am in the fortunate position of having the money to pay off my $150k mortgage in one lump sum. What are the things to consider when deciding this? I know the most important pro is the piece of mind of not having a mortgage. I know the argument against it is that the money will likely grow faster in stocks, considering a low interest rate (mine is around 2.85%) and mortgage tax breaks. Is there an online calculator that people recomend to figure this stuff out?
 

FliXFantatier

Master of the Reality Stone
Avenger
Oct 25, 2017
3,307
Los Angeles
Thanks to a windfall I am in the fortunate position of having the money to pay off my $150k mortgage in one lump sum. What are the things to consider when deciding this? I know the most important pro is the piece of mind of not having a mortgage. I know the argument against it is that the money will likely grow faster in stocks, considering a low interest rate (mine is around 2.85%) and mortgage tax breaks. Is there an online calculator that people recomend to figure this stuff out?
I am not aware of a calculator.
2.85% isn't that low imho. Personally I would take that guaranteed return and pay it off. I can only imagine how good that will feel. Then you can start putting you monthly mortgage amount to work for you when you invest it!
 

Cilidra

Member
Oct 25, 2017
579
Ottawa
Thanks to a windfall I am in the fortunate position of having the money to pay off my $150k mortgage in one lump sum. What are the things to consider when deciding this? I know the most important pro is the piece of mind of not having a mortgage. I know the argument against it is that the money will likely grow faster in stocks, considering a low interest rate (mine is around 2.85%) and mortgage tax breaks. Is there an online calculator that people recommend to figure this stuff out?
Everyone one is different. Depends on your aversion to risk or not.
Personally, in your situation (and I have done this myself), I would invest that money and keep the mortgage. In then end, considering the interest and the tax break associated with you are VERY likely to come ahead. Especially if you consider investing in something that is also tax sheltered (like IRA or ROTH).
That said, this is leveraging, meaning you borrow from the bank to invest (in this case to keep a loan to invest money you have). This means you get the growth on both investments (your house and whatever investment you made) but have the risk of both (if real estate and market crash).
On a personal level, I think is totally worth it, I have been heavily leveraged for the pass 15 years and have made quite a bit doing so.
In your situation, unless you were having a hard time, I doubt your risk would be that great.
 

Kieli

Member
Oct 28, 2017
1,809
I feel like we are way overdue for a recession. Would it be a dumb idea now to go for 100% bonds, and then once the bonds mature, swing the other way and go aggressively on stocks? I guess in some ways it sounds like I'm trying to time the market by riding out the recession, and it's impossible to time the market (that much, I know).
 

Yaboosh

Member
Oct 25, 2017
5,365
I feel like we are way overdue for a recession. Would it be a dumb idea now to go for 100% bonds, and then once the bonds mature, swing the other way and go aggressively on stocks? I guess in some ways it sounds like I'm trying to time the market by riding out the recession, and it's impossible to time the market (that much, I know).
That's the definition of timing the market.
 

CrankyJay

Member
Oct 25, 2017
5,463
Getting tired of managing my own individual stocks. I want to liquidate what I have and just out into an ETF. I use TD Ameritrade and know nothing about ETFs. Can I just dump all my money in VTI and forget about it or is there something else I need to be aware of
 

CrankyJay

Member
Oct 25, 2017
5,463
I am not aware of a calculator.
2.85% isn't that low imho. Personally I would take that guaranteed return and pay it off. I can only imagine how good that will feel. Then you can start putting you monthly mortgage amount to work for you when you invest it!
I’m on the flip side. Invest it now, and have that cash available to withdraw in the event of an emergency.
 

zer0das

Member
Nov 20, 2017
2,007
I feel like we are way overdue for a recession. Would it be a dumb idea now to go for 100% bonds, and then once the bonds mature, swing the other way and go aggressively on stocks? I guess in some ways it sounds like I'm trying to time the market by riding out the recession, and it's impossible to time the market (that much, I know).
Most of the large market gains (not including dividends) are only on a handful of a days in the year. Here's a few tables demonstrating this:

https://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/

While it might be tempting to try to avoid the worst days, you will also be missing all of the good days too. Every year you're wrong and the overall market goes up, you're likely missing out on an extra 5% in returns. If you're concerned about investing at a peak, just space out when you invest your money. You can also hold like 20-30% in bond funds and then liquidate and put them toward stocks/an ETF when there is a downturn.

Thanks to a windfall I am in the fortunate position of having the money to pay off my $150k mortgage in one lump sum. What are the things to consider when deciding this? I know the most important pro is the piece of mind of not having a mortgage. I know the argument against it is that the money will likely grow faster in stocks, considering a low interest rate (mine is around 2.85%) and mortgage tax breaks. Is there an online calculator that people recomend to figure this stuff out?
I would say 2.85% is about as low you could expect. You could almost match that with just bonds, generating a higher return rate shouldn't be that difficult. If you invest in an index fund or have dividend reinvestment, your investment is going to have compounding interest over time. You can't get that from paying off a mortgage in a lump sum. Also you're not obligated to do one or the other: you could do a smaller lump sum payment, and invest the rest (if psychologically paying down your mortgage is important to you).
 

hockeypuck

Member
Oct 29, 2017
413
Getting tired of managing my own individual stocks. I want to liquidate what I have and just out into an ETF. I use TD Ameritrade and know nothing about ETFs. Can I just dump all my money in VTI and forget about it or is there something else I need to be aware of
Capital gains taxes if the money is in a taxable account.
 

CrankyJay

Member
Oct 25, 2017
5,463
I believe you would pay capital gains taxes on those individual stocks you’re selling in order to buy an index fund, assuming this is done in a taxable account.
Oh. That I know. Just sold half my TWTR shares after being up 100%. Long term holding. Just getting tired of managing my own portfolio. I’ve been way too risky in pharmaceutical stocks. Haha.
 

vypek

Member
Oct 25, 2017
3,867
Is anyone here in mutual funds or ETFs for the international market? Just curious what people are using for their percentage split on that. I've got a very tiny percentage in international and think I'll keep it that way.

Also short term reserves are just the unused cash I have in my account, right? They are what is used when I purchase my ETFs?
 

FliXFantatier

Master of the Reality Stone
Avenger
Oct 25, 2017
3,307
Los Angeles
Is anyone here in mutual funds or ETFs for the international market? Just curious what people are using for their percentage split on that. I've got a very tiny percentage in international and think I'll keep it that way.

Also short term reserves are just the unused cash I have in my account, right? They are what is used when I purchase my ETFs?
I have 40% international
 

Chaosblade

Resettlement Advisor
Member
Oct 25, 2017
2,820
International is just more diversity. 40% is pretty close to matching the market I think. As with anything else related to portfolio balance, there are all sorts of different opinions. Some people don't touch it, some people want the increased diversity, some people think international is undervalued and tilt toward it, etc.
 

Spine Crawler

Member
Oct 27, 2017
5,084
Thanks to a windfall I am in the fortunate position of having the money to pay off my $150k mortgage in one lump sum. What are the things to consider when deciding this? I know the most important pro is the piece of mind of not having a mortgage. I know the argument against it is that the money will likely grow faster in stocks, considering a low interest rate (mine is around 2.85%) and mortgage tax breaks. Is there an online calculator that people recomend to figure this stuff out?
there can be conditions in your contract that require you to pay a prepayment penalty
Is anyone here in mutual funds or ETFs for the international market? Just curious what people are using for their percentage split on that. I've got a very tiny percentage in international and think I'll keep it that way.

Also short term reserves are just the unused cash I have in my account, right? They are what is used when I purchase my ETFs?
i invest into an etf that follows the msci world index. its 60% US though and doesnt cover south korea or china.
 

tokkun

Member
Oct 27, 2017
1,364
What's the diff between a mutual fund VTSAX and the ETF VTI? Let's say my theoretical initial investment amount is $10k
There are a number of small differences, but if your goal is to be as hands-off as possible, I would recommend the mutual fund, because it will allow automatic dividend reinvestment.

Interesting. Any particular reason you chose is to be 40% of your stock? I only ask cause Vanguard mentions 30 to 50 but I don't know why yet. Was looking at it today and decide to research it this weekend
Vanguard has increased its recommended international allocation over the years. This is largely because certain valuation metrics score US stocks as being overpriced relative to international stocks. If you believe these metrics are valid predictors of future performance, then all other things being equal, they predict lower returns for US stocks than for international stocks in the future.

Some will argue that more international stocks is a pure diversification strategy, but there is a lot of debate on whether this is actually effective, since US and international stocks tend to have a pretty high correlation. Of course it is impossible to completely rule out a Japan-like stagnation in the US, even if there are structural factors that make it much less likely, so some may feel more security with this type of diversification even if it isn't helping their returns.
 

vypek

Member
Oct 25, 2017
3,867
International is just more diversity. 40% is pretty close to matching the market I think. As with anything else related to portfolio balance, there are all sorts of different opinions. Some people don't touch it, some people want the increased diversity, some people think international is undervalued and tilt toward it, etc.
i invest into an etf that follows the msci world index. its 60% US though and doesnt cover south korea or china.
Vanguard has increased its recommended international allocation over the years. This is largely because certain valuation metrics score US stocks as being overpriced relative to international stocks. If you believe these metrics are valid predictors of future performance, then all other things being equal, they predict lower returns for US stocks than for international stocks in the future.

Some will argue that more international stocks is a pure diversification strategy, but there is a lot of debate on whether this is actually effective, since US and international stocks tend to have a pretty high correlation. Of course it is impossible to completely rule out a Japan-like stagnation in the US, even if there are structural factors that make it much less likely, so some may feel more security with this type of diversification even if it isn't helping their returns.
Thanks everyone for the replies to my questions. I have a lot more to think about when it comes to international stocks and the ratio. Suddenly this feels just as overwhelming as when I was first reading up on this thread and before I started to actually invest lol. Getting started felt a little easier though. I can tell asset ratio balancing is going to be something that I'm going to struggle with and get a little obsessed over. Does Vanguard have a service or some kind of helpful guide that would help people with that? I'm thinking I should increase my international holdings but not sure if I should just place more money into it during the year and hope it starts to balance better or just sell some VTI now to purchase it and then try to maintain a ratio during the year.
 

tokkun

Member
Oct 27, 2017
1,364
Thanks everyone for the replies to my questions. I have a lot more to think about when it comes to international stocks and the ratio. Suddenly this feels just as overwhelming as when I was first reading up on this thread and before I started to actually invest lol. Getting started felt a little easier though. I can tell asset ratio balancing is going to be something that I'm going to struggle with and get a little obsessed over. Does Vanguard have a service or some kind of helpful guide that would help people with that?
Vanguard has two solutions for this problem:

1. You can just buy a Target Retirement fund. The fund handles balancing between stocks & bonds, domestic & international.
2. Vanguard also offers a "robo advisor" service these days. Robo advisors are basically a paid service that invests your money for you. Unlike a hedge fund they usually invest the money in index funds and charge a lower fee.

Out of these options, I would recommend #1 since it is more tried-and-true.

I'm thinking I should increase my international holdings but not sure if I should just place more money into it during the year and hope it starts to balance better or just sell some VTI now to purchase it and then try to maintain a ratio during the year.
Is this a retirement account or a taxable account? If it's the latter, then selling will result in capital gains tax.
 

vypek

Member
Oct 25, 2017
3,867
Vanguard has two solutions for this problem:

1. You can just buy a Target Retirement fund. The fund handles balancing between stocks & bonds, domestic & international.
2. Vanguard also offers a "robo advisor" service these days. Robo advisors are basically a paid service that invests your money for you. Unlike a hedge fund they usually invest the money in index funds and charge a lower fee.

Out of these options, I would recommend #1 since it is more tried-and-true.



Is this a retirement account or a taxable account? If it's the latter, then selling will result in capital gains tax.
Thank you for the information. I actually have a target retirement fund for my 401k right now so maybe I should also consider that for my other account. This is a retirement account (Roth IRA). Selling for that shouldn't result in capital gains tax, should it? Or is there a tax on any money above what I actually invested?

This could be a situation where I just need to suck it up and experiment/learn how to handle the finances. If most people balance their assets once per year then I should learn how to figure out the best way to find out what to sell and purchase in its place. During the year I can aim to keep that asset mix as close to target as I can and then adjust once per year to make sure its as close as I can get. I don't want to screw myself over by letting too much over analyzing and fear get the best of me.
 

Linkura

Member
Oct 25, 2017
14,648
Thank you for the information. I actually have a target retirement fund for my 401k right now so maybe I should also consider that for my other account. This is a retirement account (Roth IRA). Selling for that shouldn't result in capital gains tax, should it? Or is there a tax on any money above what I actually invested?

This could be a situation where I just need to suck it up and experiment/learn how to handle the finances. If most people balance their assets once per year then I should learn how to figure out the best way to find out what to sell and purchase in its place. During the year I can aim to keep that asset mix as close to target as I can and then adjust once per year to make sure its as close as I can get. I don't want to screw myself over by letting too much over analyzing and fear get the best of me.
No tax on sales on Roth IRA.
 

tokkun

Member
Oct 27, 2017
1,364
This could be a situation where I just need to suck it up and experiment/learn how to handle the finances. If most people balance their assets once per year then I should learn how to figure out the best way to find out what to sell and purchase in its place. During the year I can aim to keep that asset mix as close to target as I can and then adjust once per year to make sure its as close as I can get. I don't want to screw myself over by letting too much over analyzing and fear get the best of me.
Well, that's fine but it's not something you "need" to do. There is nothing wrong with buying a Target Retirement fund and leaving it alone for decades. The research actually shows that people who are less hands-on get better returns anyway.
 

vypek

Member
Oct 25, 2017
3,867
No tax on sales on Roth IRA.
Awesome. Thanks for letting me know.

Well, that's fine but it's not something you "need" to do. There is nothing wrong with buying a Target Retirement fund and leaving it alone for decades. The research actually shows that people who are less hands-on get better returns anyway.
That is really good to hear. Thanks for all the helpful replies to my questions and concerns.
 
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OP
TheTrinity

TheTrinity

Member
Oct 25, 2017
255
Success! April was one of the rare months where our capital gains outstripped our job income by a couple thousand dollars. It's funny when you start you don't really see where it can end up but it can certainly ramp up quickly.

And I think it proves that not touching anything is a good move. We've rebalanced only through new purchases, I haven't sold a single thing in years, just plowing money in the same old couple of index funds.
 

FliXFantatier

Master of the Reality Stone
Avenger
Oct 25, 2017
3,307
Los Angeles
Success! April was one of the rare months where our capital gains outstripped our job income by a couple thousand dollars. It's funny when you start you don't really see where it can end up but it can certainly ramp up quickly.

And I think it proves that not touching anything is a good move. We've rebalanced only through new purchases, I haven't sold a single thing in years, just plowing money in the same old couple of index funds.
Good job!
 

Darren Lamb

Member
Dec 1, 2017
174
Anyone here use a 403b? I'm about to start a new job on Monday, employer will match 2:1 up to 10%/5% for a standard tax-deferred plan

I was thinking of doing the following:
1) Putting my 401k balance (56k) into a rollover IRA
2) Putting 5% into 403b to take advantage of the match
3) Maximum contribution in a Roth IRA
4) Add any remainder to savings/non-retirement accounts. Used to have ~400 or so a month going to my high-yield savings account when contributing 10% in my prior 401k plan.

My income is in the range where I can max out the Roth contribution, but can't deduct anything. I'm feeling a bit dim but why wouldn't you go with a Roth in this case?

Also, for background: 29 years old, 42k of student loans @ 4.7% fixed, and I have about 6 months worth of expenses saved in cash. Rent is about 10% gross, car payment ~3%, but buying a home isn't in the cards without a much larger down payment
 

Linkura

Member
Oct 25, 2017
14,648
Anyone here use a 403b? I'm about to start a new job on Monday, employer will match 2:1 up to 10%/5% for a standard tax-deferred plan

I was thinking of doing the following:
1) Putting my 401k balance (56k) into a rollover IRA
2) Putting 5% into 403b to take advantage of the match
3) Maximum contribution in a Roth IRA
4) Add any remainder to savings/non-retirement accounts. Used to have ~400 or so a month going to my high-yield savings account when contributing 10% in my prior 401k plan.

My income is in the range where I can max out the Roth contribution, but can't deduct anything. I'm feeling a bit dim but why wouldn't you go with a Roth in this case?

Also, for background: 29 years old, 42k of student loans @ 4.7% fixed, and I have about 6 months worth of expenses saved in cash. Rent is about 10% gross, car payment ~3%, but buying a home isn't in the cards without a much larger down payment
A 403(b) is basically a 401(k), just a different name for nonprofits and other such similar orgs. All sounds good to me. You wouldn't go with a Roth if you wanted to put the money away pre-tax instead of post.
 

tokkun

Member
Oct 27, 2017
1,364
My income is in the range where I can max out the Roth contribution, but can't deduct anything. I'm feeling a bit dim but why wouldn't you go with a Roth in this case?
In that situation you should always go with Roth. Roth is strictly superior to non-deductible traditional.

For the most part, the only reason anyone makes non-deductible traditional contributions is if they are over the income limit for Roth and want to do the Backdoor Roth method.
 

Smiley90

Member
Oct 25, 2017
2,387
Is it bad that I kind of want the market to tank so I can move money from a taxed account to a tax-free account without incurring a ton of capital gains taxes?
 

demosthenes

Member
Oct 25, 2017
4,235
Success! April was one of the rare months where our capital gains outstripped our job income by a couple thousand dollars. It's funny when you start you don't really see where it can end up but it can certainly ramp up quickly.

And I think it proves that not touching anything is a good move. We've rebalanced only through new purchases, I haven't sold a single thing in years, just plowing money in the same old couple of index funds.
I'm just curious by what you mean when you say capital gains. Do you mean unrealized? Realized? Distributions?
 

btags

Member
Oct 26, 2017
481
Rochester NY
Alright, I have decided it is time to take the plunge. I am a grad student so have no 401k with my employer (wooo graduate school). After reading through the thread I am thinking about investing with vanguard and setting up an IRA. I am also somewhat confused about whether I should start with a Roth IRA or a traditional IRA. Based on the reading I have done so far, it seems like the Roth IRA would be the better choice as I have a realtively low income right now, but I am not certain. Any advice? Additionally, people seem to suggest investing in total US or international stock, but what percentage of investment should I be putting into bonds at this point (I am 25 now, have a decent amount of time to retirement I would imagine)?

Lastly, I really want to just make the jump and I feel like I already know the answer to this based on responses in this thread, but would now be a bad time to start?
 
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FliXFantatier

Master of the Reality Stone
Avenger
Oct 25, 2017
3,307
Los Angeles
Alright, I have decided it is time to take the plunge. I am a grad student so have no 401k with my employer (wooo graduate school). After reading through the thread I am thinking about investing with vanguard and setting up an IRA. Additionally, people seem to suggest investing in total US or international stock, but what percentage of investment should I be putting into bonds at this point (I am 25 now, have a decent amount of time to retirement I would imagine)?

Lastly, I really want to just make the jump and I feel like I already know the answer to this based on responses in this thread, but would now be a bad time to start?
The ideal time to start was in the past. The best you can do today is start now. 😉
 

vypek

Member
Oct 25, 2017
3,867
I don't want to start a new thread and do a poll but I'm curious about something here.

Do you all use mutual funds or ETFs, and why? (Those of you using one or the other)
 

Powdered Egg

Member
Oct 27, 2017
9,080
I have a question. I am financially illiterate and just got my tax return money. Does anyone here vouch for Wealthfront for financial beginners?

I'm going to go through the thread and other webpages to learn something in the meantime.
 

Chaosblade

Resettlement Advisor
Member
Oct 25, 2017
2,820
I have a question. I am financially illiterate and just got my tax return money. Does anyone here vouch for Wealthfront for financial beginners?

I'm going to go through the thread and other webpages to learn something in the meantime.
If the money is for retirement and you just want to be hands off, I'd invest in a Vanguard/Fidelity target date fund instead of a robo platform like Wealthfront or Betterment. Completely effortless on your part and it doesn't have the extra robo-advisor management fees.

I don't want to start a new thread and do a poll but I'm curious about something here.

Do you all use mutual funds or ETFs, and why? (Those of you using one or the other)
Mutual funds, mostly for the automatic investment option.
 
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Smiley90

Member
Oct 25, 2017
2,387
I don't want to start a new thread and do a poll but I'm curious about something here.

Do you all use mutual funds or ETFs, and why? (Those of you using one or the other)
ETF's because of lower fees and easy to use online

If you find a mutual fund with low fees that you're happy with (and there's plenty of those as well) then feel free to use them
 

Clockblockers

Member
Oct 25, 2017
979
United States
I don't want to start a new thread and do a poll but I'm curious about something here.

Do you all use mutual funds or ETFs, and why? (Those of you using one or the other)
vanguard admiral share mutual funds. I buy and hold so I don't see any reason to buy something I need to be able to sell quickly. I also know John Bogle was against ETFs and I still follow the outline of his retirement strategy.

I should add I have nothing against ETFs, if people want to use them than go for it.
 

vypek

Member
Oct 25, 2017
3,867
Mutual funds, mostly for the automatic investment option.
ETF's because of lower fees and easy to use online

If you find a mutual fund with low fees that you're happy with (and there's plenty of those as well) then feel free to use them
vanguard admiral share mutual funds. I buy and hold so I don't see any reason to buy something I need to be able to sell quickly. I also know John Bogle was against ETFs and I still follow the outline of his retirement strategy.

I should add I have nothing against ETFs, if people want to use them than go for it.
Thanks for the replies and input, everyone. I'm currently using ETFs because I couldn't get into the admiral share mutual funds I wanted without having to dip into the emergency fund that I don't want to touch. The ETFs were/are great for just getting into investing sooner rather than waiting until I'm ready to get the admiral shares. I'm happy with them so far and the expense ratio seems to have lowered from what I can tell but was wondering if there was anything I might want to consider in the future about moving to the mutual funds by selling the ETFs and purchasing the mutual funds.
 

Mr.Mike

Member
Oct 25, 2017
1,442
I don't want to start a new thread and do a poll but I'm curious about something here.

Do you all use mutual funds or ETFs, and why? (Those of you using one or the other)
ETFs, and I'd imagine most of the Canadians here do as well. There just aren't really any publicly available index mutual funds that can compete with ETFs on fees in Canada.

I don't really know why there aren't any cheap index mutual funds in Canada. Vanguard Canada does actually sell actively managed mutual funds that you can buy through discount brokerages.
 

vypek

Member
Oct 25, 2017
3,867
ETFs, and I'd imagine most of the Canadians here do as well. There just aren't really any publicly available index mutual funds that can compete with ETFs on fees in Canada.

I don't really know why there aren't any cheap index mutual funds in Canada. Vanguard Canada does actually sell actively managed mutual funds that you can buy through discount brokerages.
Oh good point. I didn't even think about a fee disparity like that in Canada. Just assumed it was the same as here. Its too bad they are not offered.