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TraderStav posted:Frankly though, I don't believe that there are too many people making rash and final financial decisions such as this based on a cursory use of a lightweight tool they barely understood to begin with. American's as a population have no savings. You forget how retarded the unwashed masses really are. http://www.bargaineering.com/articles/average-retirement-savings-by-age.html A little dated (2-4yrs old) but I think very illustritive
And that includes defined benefit plan assets. That's SAD!
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Oct 26, 2011 19:39
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KennyG posted:American's as a population have no savings. You forget how retarded the unwashed masses really are. This fact has not gotten by me in the least. I'm speaking of the minority that actually do pay any attention to their finances, there is a very small section that actually do it intelligently and pragmatically.
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Oct 26, 2011 19:45
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TraderStav posted:This fact has not gotten by me in the least. I'm speaking of the minority that actually do pay any attention to their finances, there is a very small section that actually do it intelligently and pragmatically. I think KennyG, are in agreement. You think people don't use calculators, I think more people than you guess actually do and they are getting confusing information from them. People look and are stupid anyway. Are you saying that you only think a tiny percentage of Americans look at these and then 100% of that subset ignore them?
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Oct 26, 2011 20:08
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Tai-Pan posted:I think KennyG, are in agreement. You think people don't use calculators, I think more people than you guess actually do and they are getting confusing information from them. People look and are stupid anyway. I'm arguing that the point is more or less moot. Those who do take a serious look at their finances will not solely rely on such a calculator, and will engage a professional or educate themselves more completely while the others plug in some numbers and never do anything to better their financial plan regardless of the outcome of the calculator.
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Oct 26, 2011 20:20
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TraderStav posted:I'm arguing that the point is more or less moot. Those who do take a serious look at their finances will not solely rely on such a calculator, and will engage a professional or educate themselves more completely while the others plug in some numbers and never do anything to better their financial plan regardless of the outcome of the calculator. I don't think that's necessarily true. Anyone can look at a calculator that says they'll need more income in retirement than they anticipated and immediately start saving more, without relying on the advice of a professional or doing extensive research to justify it.
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Oct 26, 2011 22:02
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bam thwok posted:I don't think that's necessarily true. Anyone can look at a calculator that says they'll need more income in retirement than they anticipated and immediately start saving more, without relying on the advice of a professional or doing extensive research to justify it. Save it where? That's the problem - just saving isn't enough. You have to be wise about it.
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Oct 26, 2011 23:13
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Shipon posted:Save it where? That's the problem - just saving isn't enough. You have to be wise about it. Just saving is fine for most. Tax-advantaged plans and investment vehicles promising higher rates of return are just tools to encourage saving in the first place. Squirreling away cash never hurt anyone, even if the real rate of return is slightly negative. It's certainly better than nothing.
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Oct 26, 2011 23:17
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Insane Totoro posted:I guess the problem might be that she substitutes across several school districts. The trouble is that their HR department is incredibly unhelpful.
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Oct 26, 2011 23:33
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bam thwok posted:I don't think that's necessarily true. Anyone can look at a calculator that says they'll need more income in retirement than they anticipated and immediately start saving more, without relying on the advice of a professional or doing extensive research to justify it. I look at calculators online and if it shows I need to save more, I just keep on increasing the rate of return assumption until I'm good. 13% annual return is totally reasonable, I'm in international equities 
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Oct 27, 2011 00:20
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Daeus posted:I look at calculators online and if it shows I need to save more, I just keep on increasing the rate of return assumption until I'm good. 13% annual return is totally reasonable, I'm in international equities Isn't math awesome? Incidentally, what do you guys consider a reasonable proportion of net worth to be in cash for a non-homeowner? As it stands, each month I save about the same amount in cash as I contribute to my retirement funds, and the total split of my net worth is about 50/50 (excluding my emergency fund). I'm worried that the amount of cash I'm holding and continue to save is as excessive as it is inefficient.
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Oct 27, 2011 15:52
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bam thwok posted:Isn't math awesome? The rule of thumb for most people with steady income is 3-6 months, regardless of home ownership status. If you have volatile income (contract worker/etc) I would recommend 12 months.
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Oct 27, 2011 15:54
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TraderStav posted:The rule of thumb for most people with steady income is 3-6 months, regardless of home ownership status. If you have volatile income (contract worker/etc) I would recommend 12 months. Isn't that just the straight up rule for an emergency fund, rather than cash savings?
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Oct 27, 2011 16:34
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bam thwok posted:Isn't that just the straight up rule for an emergency fund, rather than cash savings? I treat cash savings, outside of an emergency fund, as a situational thing. So you would be saving for specific items, with predetermined amounts. This could be a down payment on a house, a vacation fund, auto maintenance, or even just a pot of cash that makes you feel comfortable having. In my view, anything beyond the emergency fund is making accommodations for your risk tolerance. If you want to make sure that you have the 3-6 months ready, in-tact, and never touched (not willing to accept the risk of floating value due to irregular large payments, etc) then you would want to set up separate savings for those irregular events. tl;dr: depends on your risk tolerance.
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Oct 27, 2011 16:45
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Oh well, looks like my wife doesn't get a 403b match from her employer at all! HR stupidity strikes again! Just going to get a Vanguard account through my work and direct deposit $415 per month into a Roth IRA.
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Oct 28, 2011 17:02
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What's the consensus on lump-sum investing Roth IRA contributions at the beginning or end of the year versus monthly or bi-monthly when liquidity isn't really (or won't be) an issue?
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Oct 28, 2011 17:23
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I go with automatic monthly contributions. Dollar cost averaging and all that. I've heard the argument that you should invest it all as soon as possible because if you expect the market to go up over the long run, your money will have more time in the market to generate returns. I personally don't think the risk is worth the potential rewards but that's just me.
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Oct 28, 2011 17:38
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Saint Fu posted:I go with automatic monthly contributions. Dollar cost averaging and all that. I've heard the argument that you should invest it all as soon as possible because if you expect the market to go up over the long run, your money will have more time in the market to generate returns. I personally don't think the risk is worth the potential rewards but that's just me. I would agree with you, the average investor is best served by automating their retirement fund process and distancing themselves from such things as beating the market and getting swept up in all of that. I would recommend a monthly contribution into a portfolio of Index funds (if you don't have much money (<$70k), I would fund a stock index fund and a bond one until you hit that point, where your returns start overtaking the impact of your savings rate) with annual rebalancing. Simplify and automate, you're not Warren Buffet, who consequently said that index funds are the best investment choice...
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Oct 28, 2011 17:43
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Saint Fu posted:I go with automatic monthly contributions. Dollar cost averaging and all that. I've heard the argument that you should invest it all as soon as possible because if you expect the market to go up over the long run, your money will have more time in the market to generate returns. I personally don't think the risk is worth the potential rewards but that's just me. But yearly contribution is still dollar cost averaging, just over an extended time period. Is there a worthwhile marginal benefit to more frequent contributions that you're aware of?
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Oct 28, 2011 17:46
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I can't see one, if there was wouldn't it be better to invest every day?
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Oct 28, 2011 18:07
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I posted this exact same questions years ago and some other goon better with statistics than myself hashed it out. Because there are still so many annual contributions it is pretty smooth. Putting your money in at equal times means for the entire year your contribution was on average made in the middle of the year. This means you get an extra six months worth of compounding returns in the end. After our discussion it convinced me to make massive contributions Jan 1 and forget about it.
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Oct 28, 2011 18:09
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Okay here's what my wife told me from her HR department at the school district. Actually now that they gave everything to me in writing, I'm no longer sure what my wife actually gets if she contributes to the state teacher retirement plan. It's called Pissers: http://www.psers.state.pa.us/active/moneyinvested.htm From what I can gather of this, it's a defined benefit pension program? Please tell me if I am reading this right: http://www.qcsd.org/21301012615234450/lib/21301012615234450/Pension_Crisis_PSERS_FAQs.pdf So my wife contributes the max amount, which is 7.5% of her paycheck ($50,000, probably more in the future) annually. And then she gets something like $45,000/year after she retires (theoretically) in 40 years? That is insane.  Should I fully fund this and also get a Roth at the same time? If so, why? I am getting a feeling that these defined benefit pension plans are much more volatile since they are based not on your individual investments but the group investment?
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Oct 28, 2011 18:36
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sanchez posted:I can't see one, if there was wouldn't it be better to invest every day? Transaction costs would likely eat away at any gains you would have. If you were doing this in a transaction free fund though, it may be better mathematically. I know that statistically if I bill my clients monthly, rather than quarterly, they end up with a higher balance at the end of the year and my fees are higher. The 'magic' is due to the higher number of compounding periods.
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Oct 28, 2011 18:43
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Insane Totoro posted:Okay here's what my wife told me from her HR department at the school district. It probably does work like that, but not for the reason you're thinking. The pension program bears the risk of providing the benefit to the employee. The 7.5% target return, on a 7.5% of salary savings rate will not provide for more than 9 years of $45,000/yr in retirement. The employer must be contributing a portion to fund the difference to account for the remaining years of life. I just did a back of the napkin calculation in Excel and at the end of 40 years, with a base salary of $50k, annual raises of 3%, annual contribution of 7.5% and a market return of 7.5% for 40 years, the value of the investment is $303.6k. With a 45k annual withdrawal, and 7.5% return on the balance continuing into retirement, that leaves a negative balance in the 10th year of $10k. Upping the contribution amount to 15% (let's assume the employer kicks in 7.5% also), now we get some interesting results. At year 40, the portfolio is worth 607k, guess what 45k represents of that size? 7.5% So that means for every year in retirement, assuming they hit their 7.5% target, the portfolio value is constant, providing the $45k/yr in benefits. After 35 years in retirement, the portfolio is worth $692k, your wife has received 45k/yr (which in future terms, is not going to be a lot of money, so need information on any inflation adjustments to the benefit) and the pension fund keeps the 692. As I said, there has to be an inflation adjustment in that value, which would just reduce the final amount the pension balance gets. tl;dr: The math works out, it's not insane. It's likely a good solid retirement program, but definitely would want to have other retirement savings as it would not likely fund your standard of living in retirement. Is th
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Oct 28, 2011 18:56
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Okay, I think I understand how that math works out. It's funded by both employee and employer and if the investments hold out, it's pretty self-sufficient. But my question now is, isn't a Roth IRA a much more profitable investment? Or is my math weird? I'm 26 right now and if I wanted to retire at say, age 65... Ninja edit, some quick math: Roth IRA ($5000 annual investment) at 8% interest = $1,475,998.85 PSERS ($4000-ish annual investment) = $45,000-ish x 30 years of retirement for a total benefit of $1,350,000. Adjust for inflation. Wait, that's not actually much of a difference. Funding both now seems like a pretty good idea. I read that you need about at least $2.5 million if I intend to retire in 45 years. Apparently also my work has been socking 5% of my ($25k-ish) paycheck as well into a TIAA-CREF account for about $1045/year as of this year. Not too bad either.
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Oct 28, 2011 19:40
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Insane Totoro posted:Okay, I think I understand how that math works out. It's funded by both employee and employer and if the investments hold out, it's pretty self-sufficient. The Roth does not have an 8% interest rate, nor is that necessarily to be assumed. The 7.5% rate, as I believe it's worded, in the PSERS is guaranteed. If the returns are lower, the employer would have to make up the difference. If it's greater, I don't believe you would see that. At least this is how most pension programs work. The Roth is a different retirement vehicle. You cannot contribute to it after you make a certain amount of income, and you fund it with after-tax dollars today. In retirement, those dollars are withdrawn tax free (on both gains, dividends, and interest) whereas the pension would be taxable income, but tax-free today. The amount you need at retirement depends on a lot of factors. Your standard of living, your expected lifespan, etc. It sounds like you guys are fairly young, and it's good that you're thinking about this stuff. The more you save now, the WAY more you will have at retirement as well as building solid wealth-building behaviors that will continue throughout your careers. If you can continue to live beneath your means, save 15% of your income, it will be mostly irrelevant what kind of returns you get on your portfolio, at least in the near term. With an assumed 1:1 match on the PSERS, I'd recommend maximizing that for your wife, then begin funding your Roths. After you maximize your Roths, you'd want to take advantage of any non-employer-matching retirement program your company has for you. After those are maximized, you are out of retirement account options, but can then turn to taxable investment portfolios, which should not be overlooked.
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Oct 28, 2011 19:57
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So you actually recommend two individual Roth accounts? If my employer is already funding $1000 into a TIAA-CREF account for me, should I just match their amount? They are putting in $1000 regardless of whatever action I take.
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Oct 28, 2011 20:34
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Insane Totoro posted:So you actually recommend two individual Roth accounts? Absolutely, Roths are amazing. You should only fund your employer retirement account FIRST if they match your contribution. Otherwise, do your Roth first, then when that is maximized do your employer plan.
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Oct 28, 2011 20:36
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bam thwok posted:But yearly contribution is still dollar cost averaging, just over an extended time period. Is there a worthwhile marginal benefit to more frequent contributions that you're aware of? Daues posted:I posted this exact same questions years ago and some other goon better with statistics than myself hashed it out. Because there are still so many annual contributions it is pretty smooth. Putting your money in at equal times means for the entire year your contribution was on average made in the middle of the year. This means you get an extra six months worth of compounding returns in the end. After our discussion it convinced me to make massive contributions Jan 1 and forget about it. Forums poster Droo and I argued a little back and forth about this almost exactly one year ago. Here's a link to a similar question in this thread regarding dollar cost averaging that started the whole thing. My stance was that the variance of the returns with dollar cost averaging (weekly or monthly) was a little lower than with once/year "lump sum" contributions. I was right about that, but as Droo demonstrated, there is a slight benefit to the lump sum strategy in both overall return as well as the success rate of reaching a certain retirement threshold (assuming the market goes UP on average over your investment time horizon). If the market goes down over that time horizon (ala Japan's equities over the last 30 years), then your returns would likely be equivalently magnified in a downward direction. Since we generally are optimistic that a well diversified equity portfolio will appreciate between now and your retirement (otherwise why would you even be purchasing them?), then logically we should also recommend that you invest in lump sums as much as possible. What this "logical" recommendation ignores is human psychology. I agree with TraderStav that for the average person, we should recommend an automated deduction process to avoid thoughts of market timing and anxiety. For most people this would necessitate monthly (or more frequent) contributions in order to avoid the shock of such a huge lump-sum debit from their bank account (and also the possibility of overdrawing their account). This also helps avoid people spending the money on something else before contributing it, which is tempting when you have $5000 sitting around in your bank account near the holidays at the end of the year. If you have enough investing discipline to avoid these issues, then by all means use a lump sum contribution on January 1st, because statistically it makes sense. Just remember that you have to stick by your plan. If that time rolls around and the market has been trending down 10% over the previous month.... it's going to be awfully tempting to hold off on making that contribution. You'd just be market timing in that case and you might miss out on a turnaround of another 10% the first week of January.
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Oct 28, 2011 20:46
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TraderStav posted:Absolutely, Roths are amazing. Forgive my endless questions. Then wouldn't it just be more prudent to do two Roths rather than a pension plan and a single Roth? Sounds more flexible.... Although I guess the pension plan is kind of mandatory....
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Oct 28, 2011 20:58
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Insane Totoro posted:Forgive my endless questions. Pension plan is receiving a benefit for contribution, the employer match, which is free money. It also may have a higher contribution maximum. You'd want to maximize the free money, then the Roths, then turn to your employer plan to be able to fund more tax-deferred retirement savings. After you've exhausted those, you're stuck with taxable investment accounts, which will not perform as well over time due to the lack of a tax benefit.
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Oct 28, 2011 21:03
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Hah, I just setup my automated deposit into my Vanguard account last month. I have the discipline necessary to hold onto the $5k so if this had come up a month ago I would have done that. I'm too lazy now to cancel the automated deposits probably. Oh well.
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Oct 28, 2011 21:17
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Insane Totoro posted:Forgive my endless questions. It would be most prudent to do your 403(b)[I assume that's what your TIAA-CREF account is], her pension, AND two Roths along with Taxible investing. Obviously you have to live too, so prioritizing it would be in the following order:
This is because an employer match is FREE money. It's an instant 100% return. You contribute $1, you invest $2! I die a little inside when I hear about people not participating in their 401(k) because "The market's down right now" because even when the S&P was down nearly 20% for the year earlier this month, they were still ahead 60% due to the match! Also every Defined contribution plan has some sort of fixed income (I.E. Bonds) option. Short of free money, tax free money is also awesome. That is why ROTH accounts are next in the list. For a moderate income married couple such as your selves you are both eligible to contribute $5k ea or $10k total annually and should try to contribute as much as you can. If you can't save that much, don't worry, but that should be your goal. The odds are strong that your marginal rate is lower than what you will be paying in future years, so contributing to a Roth is in your best interests. If you have extra money, then comes any other tax preferred vehicles with a preference to the 403(b) because it's your money and not subject to pension defaults, union issues, or restructuring due to municipal bankruptcy. Personally, the only way I would contribute to a defined benefit plan would be that it were mandatory. I would not volunteer any extra money or 'buy time' in that system. Pensions are long term gambles beyond your control. See: Every public employee of bankrupt cities. (full disclosure: I am a member of a pension system and it's long term solvency more than anything else is what keeps me up at night. Theoretically I need it to stay solvent for another 70+ years!  )After that, you're on your own and Uncle Sam will dip into your account every year but at that point you should be substantially well invested and be making significant amounts. KennyG fucked around with this message at 00:14 on Oct 30, 2011 |
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Oct 30, 2011 00:08
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Transferring into a Vanguard Roth, should I go into their 2045 targeted or just into one of their index's? This account won't have enough funds to split into multiple funds (yet).
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Oct 30, 2011 18:01
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How do you guys feel about numismatics vs. bullion as a mid-to-long term investment? One of my friends recently bought a few semi-numismatic coins, and it's really the first I've ever heard of it. It seems everything I find on the internet is either BEST THING EVER or NO IT'S RETARDED.
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Oct 31, 2011 01:50
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invision posted:How do you guys feel about numismatics vs. bullion as a mid-to-long term investment? A bit of commodity exposure can be a fine way to reduce volatility, but this thread is all about reducing costs, and having to deal with physical items can be pretty costly in terms of dealer spreads, shipping, security (safety deposit box and/or insurance coverage), and so forth. So investing in one of a fund that is tied to the commodity might be a better option. General tip: If you want to add a bit of commodities to your portfolio, make sure the fund you're looking at buying actually tracks the commodity and isn't one of those terrible ones that use rolling futures contracts and which aren't intended to be held long term. If you didn't understand what that last sentence meant, steer clear of commodities for now because they aren't essential to a long term portfolio.
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Oct 31, 2011 07:44
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DuckConference posted:A bit of commodity exposure can be a fine way to reduce volatility, but this thread is all about reducing costs, and having to deal with physical items can be pretty costly in terms of dealer spreads, shipping, security (safety deposit box and/or insurance coverage), and so forth. So investing in one of a fund that is tied to the commodity might be a better option. Not to mention that over the long-run, commodities have failed to produce excess return in a diversified portfolio, nor have they reduced portfolio risk. With neither of those two factors being there, I have no reason to have it in my portfolio.
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Oct 31, 2011 12:50
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edit - nevermind.
cowofwar fucked around with this message at 14:04 on Oct 31, 2011 |
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Oct 31, 2011 14:02
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mcsuede posted:Transferring into a Vanguard Roth, should I go into their 2045 targeted or just into one of their index's? This account won't have enough funds to split into multiple funds (yet). Depends what you're looking to do. Target funds are made up of their other index funds. If you're fine with their allocation 90/10 in that fund, it's probably your easiest solution.
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Oct 31, 2011 17:04
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I've recently had to switch my 401k around and to a different company. I've selected: VT Vantagepoint Milestone 2040 and Allianz Dividend Value, and split the contributions to each down the middle. Are these "ok" picks for someone who wants long-term growth while maintaining some stability? I'm in my twenties and would have picked a 2045 or possibly later if they had one available. Although I've recently considered pulling out of the VT 2040 plan because it has performed awful and has only returned an average of 1.8% since the fund itself it was started, and has gone nothing but down in the last two years. The average between the two funds appears to be about 85% / 15%.
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Oct 31, 2011 21:53
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The expense ratio on the Allianz Dividend Value fund is fairly high (1.070). Is there a reason you chose it? As for the VT Vantagepoint Milestone 2040, it was created in 2005 and we had a huge financial downturn shortly after. So its return is going to be paltry just like any equity heavy fund since 2005. Both have high expense ratios too. If it's in a 401k, you probably don't have a lot of options. Are there some basic index funds or any other target funds available in it?
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Oct 31, 2011 22:16
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