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Welcome to the long-term investing & retirement thread. Here is the place to get suggestions on how to set up your 401k, or IRA, or taxable accounts including short-to-medium term savings as part of a larger portfolio.Benjamin Graham, The Intelligent Investor, revised edition, pg. 205 posted:"The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements." Some of the people who post here have actual financial training but most do not. Some of us are quite cynical about the financial advice industry, some are not. Take any advice with a grain of salt and consider the source. NOTE! This is generally a USA-centric thread. BFC has a Canadian thread on the same topic, as well as a UK thread. If you're from some other country, feel free to ask questions here, but most of the advice in the OP and other posts may not apply. Wow, this is complicated. I heard there are books I could read but isn't there something quicker? GoGoGadgetChris posted:Bernstein (author of Four Pillars) also wrote a short eBook "If You Can": http://www.etf.com/docs/IfYouCan.pdf If You Can is a great primer. It's written specifically for young investors. PSL posted:Can we update the OP to include the Stock Series at jlcollinsnh? I feel like telling people "read a whole book" is not always the best way to start them off when they come in with basic questions. Parts I-VI of the Stock Series are especially good for someone who's just beginning their exploration. https://investor.vanguard.com/investor-resources-education How much should I be saving? This depends totally on your individual goals, age, and risk tolerance. It stands to reason that if you are 22 years old and don't want to retire for 40 years, your needs are going to be different than the poor schmuck that is just starting to save for retirement at 50 years old. That said, if you are young and fairly new in your career, which you most likely are if you are reading this forum, 10% of your pre-tax salary is an absolute baseline minimum amount that you should be saving. The more aggressively you save on top of that, the better off your long-term financial outlook will be. Here is a decent calculator to help you run different savings scenarios. I'm in my early 20s, why do I need to save for retirement? Compounding interest is a wonderful thing when it works in your favor. Consider this scenario: Let's say there is a 25 year old kid that is making $50k per year. He starts contributing 10% of his salary to a 401k plan every year, until he retires at 65. Assuming that his salary remains equal to inflation, he will retire at 65 with about $2 million in savings, assuming an average 8% return. If he starts saving later, he will have to save much, much more per year to reach the same target. The market is getting killed, shouldn't I wait it out for a while? No. Consider this somewhat-famous Warren Buffet quote: quote:To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore. Roth IRAs, 401(k)...I'm confused. Where do I start? There are two basic types of savings accounts -- tax-advantaged, and taxable. Tax-advantaged savings are where you will most likely be doing the grand majority of your savings until later in your career. There are 3 main types of tax-advantaged savings accounts -- Roth IRA, Traditional IRA, and 401(k) (or equivalent). I could explain all of these in detail, but Nerdwallet has already done a pretty good job right here. In general, most people would want to follow these rules: 1) Contribute to 401(k) up to employer match. Always get the free money! 2) Max out Roth IRA ($6,000 limit in 2022). You can skip this if your 401k options are good and you don't need the extra tax-advantaged space. 3) Max out 401(k) ($20,500 limit for 2022) 4) If you were able to finish Step 3, you will end up rich in all likelihood. You might also consider this pair of frequently cited flowcharts from reddit, slightly old but applicable to US residents: personal finance,  and financial independence,  And if you've used up all your tax-advantaged space and still want to save more, read the Boglehead wiki page on tax-efficient fund placement! Or at high income brackets, you may be interested in the a backdoor Roth or mega-backdoor Roth as described at their respective Bogleheads wiki pages. In general, people should visit the bogleheads wiki: https://www.bogleheads.org/wiki/Getting_started I have all these different funds to choose from, where do I start? This is where the fun begins. Vanguard's target retirement funds are a great place to start if you are a passive investor. That said, if you are investing in 401(k), there's a good chance that you will have very limited options. In general, all long-term investors should have some exposure of U.S. equities, international equity, and fixed income. The exact ratios again depend on your age, goals, and risk-tolerance. I am 25 years old and I try to keep to my plan of 45% intl equity/40% US equity/15% fixed income. Another easy starting place are the so-called Lazy Portfolios - that page actually discusses several different strategies, any of which could be a good starting point (except maybe putting 25% of your portfolio in gold). If you know what portfolio you want and are trying to make it fit into the lovely options of your work 401k, there are some suggestions in the lazy portfolio section of the Boglehead wiki. There is also a portfolio calculator tool over at Morningstar that you can use to compare your hacked-together portfolio with whatever index you are trying to approximate. I should get a whole life / universal life insurance policy to keep everything simple, right? No you shouldn't. Here is a post about how insurance works. I have time to read an actual book - but which one? Fundamentals Intelligent Investor https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661 The Four Pillars of Investing https://www.amazon.com/Four-Pillars-Investing-Building-Portfolio/dp/0071747052/ The Bogleheads' Guide to Investing http://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/1118921283/ Deeper Cuts Stocks for the Long Run https://www.amazon.com/Stocks-Long-Run-Definitive-Investment/dp/0071800514 A Random Walk Down Wall Street http://www.amazon.com/Random-Walk-Down-Wall-Street/dp/0393340740/ The Psychology of Money https://www.amazon.com/Psychology-Money-Timeless-lessons-happiness/dp/0857197681 Why Smart People Make Big Money Mistakes http://www.amazon.com/Smart-People-Money-Mistakes-Correct/dp/B00150D6KU/ Economic Interest Why Minsky Matters https://www.amazon.com/Why-Minsky-Matters-Introduction-Economist/dp/0691159122 Devil Take the Hindmost http://www.amazon.com/Devil-Take-Hindmost-Financial-Speculation/dp/0452281806/ Against the Gods http://www.amazon.com/Against-Gods-Remarkable-Story-Risk/dp/0471295639/ A Splendid Exchange http://www.amazon.com/Splendid-Exchange-Trade-Shaped-World/dp/0871139790/ ...if you're looking for data, not a book, check out FRED: https://fred.stlouisfed.org/ Where can I open an account? If we're talking taxable brokerage accounts or IRAs, the three most popular sites are: Schwab (note, TD Ameritrade was bought by Schwab) https://www.schwab.com/client-home Vanguard https://investor.vanguard.com/home Fidelity https://www.fidelity.com/ ...but there are several other brokers including services from major Wall Street banks. Help, I don't understand bonds! A lot of people don't. Here are some basics on bonds and some math on understanding bond yield and coupons. Here's the Treasury Direct site discussing savings bonds, including EE and I-Bonds. Bonds have different risks than stocks, but risks nonetheless. Some of those risks, such as interest rate risk, are discussed here and here. You may hear of people managing some of this risk by creating "ladders" with savings bonds (in 2022, I-Bonds), CDs, Treasurys, or bond funds. Read up on ladders at these pages: https://www.fidelity.com/viewpoints/investing-ideas/bond-ladder-strategy https://investor.vanguard.com/investor-resources-education/online-trading/bond-strategies https://www.schwab.com/fixed-income/bond-ladders https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders I want to buy something pricey in a few years or save for medium-term, should I just dump my money in the market? Probably not. This is not a one size fits all thing, post your question in thread. Where is the best HYSA yield? HYSAs or money market funds are typically backed by federal reserve funds or Treasury Bills, and in general you won't be able to find total return any better than a simple Treasury Bill ETF like BIL or SGOV: https://www.ssga.com/us/en/individual/etfs/funds/spdr-bloomberg-1-3-month-t-bill-etf-bil https://www.ishares.com/us/products/314116/ishares-0-3-month-treasury-bond-etf Regardless, HYSA interest rates will bounce around on a monthly basis and it's probably not worth yield chasing by frequently shifting money among accounts. I’m in my mid 40s, is it too late for me? No! The best time to begin investing was yesterday; the second best time is now. Somebody fucked around with this message at 13:22 on Nov 22, 2022 |
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Jul 3, 2008 22:15
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JohnnySavs posted:Yay! I was contemplating making a thread like this myself. I don't think that it much matters where you open up your Roth. I used to be with ING, and then switched it over to Vanguard since they provide much better analysis. Oh, and I have a huge hard-on for Vanguard. That said, I disagree with using a Roth to house income that you will eventually use in a few years for a house. There are a few reasons: 1) Retirement savings should be made separately from savings for other purchases such as a home. Even if you are trying to save for a house, you should ALWAYS put a minimum of 10% of pre-tax income against retirement. Your Roth IRA should not be a short term savings vehicle. 2) Your savings goals are very different for retirement vs. buying a house in a few years. If you are trying to save up for a house, your money should be in CDs, bonds, money market, etc. Long term savings should be mostly equity at this point. Trying to create some type of weird blended portfolio in a Roth is not really going to work for you. You don't need to be in a huge hurry to buy a house. I know the market looks low right now and it is tempting. But in all honestly renting has a lot of very important, often overlooked benefits that you don't realize until you buy your first place. Be patient, build a good down payment that is independent of your retirement savings, and make sure you have a reasonable emergency fund in place before you make the decision to buy. [panic] fucked around with this message at 13:13 on Jul 4, 2008 |
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Jul 4, 2008 12:59
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Mind_Taker posted:Just looking for some opinions on what I currently hold and my approximate allocations: That portfolio looks just OK, but I think you can do better. You have been in VWIGX and are considering VTRIX, both of which carry high-ish expense ratios that are twice something like VGTSX, which is the Vanguard Total International Stock Market Index. I just checked the charts and over 5 years, VGTSX has outperformed VTRIX by 20% and VWIGX by 40%. That said, I think you have the right idea with a high international asset allocation. Personally, I would set up your AA with something like: VFINX 25% VEXMX 20% VGTSX 35% VEIEX 10% VBMFX 10% That gets you a balanced U.S. vs. international allocation, with a slight over-index towards emerging markets, which I still believe is a good play. I also added a small allocation in bonds. Research has shown (though I can't find the drat link at the moment) that this helps mitigate risk over a long-term, while not really having a significant effect on long-term earning power. Hope this helps! edit: Here is an awesome link explaining more about Vanguard's international funds in detail. [panic] fucked around with this message at 17:25 on Jul 4, 2008 |
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Jul 4, 2008 13:58
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palatka posted:Is there something I can contribute to in lieu of a 401(k) if I am a 1099 worker? There is a single participant 401(k) plan available for independent contractors. Here is some information you can read up on. If you are interested in going this route, I would recommend calling Vanguard or Fidelity or whoever you would want to set the 401(k) up with, and they should be able to walk you through the process, including which forms need to be filled out and all of that fun stuff.
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Jul 4, 2008 16:05
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ZeroAX posted:Does anyone have any tips for starting up a roth ira? Ideally I'd like to have a mix of different funds, but most of them have some sort of minimum investment and you can only contribute $5,000 per year right?. It seems like it would take 2-3 years before I could have 4 or 5 different funds in my portfolio. I'm just worried about screwing myself over by starting out with just one fund. There are plenty of very good funds in which you could invest that will keep you fully diversified up until whatever point you have enough money banked to start slicing and dicing on your own. I know that I sound like a total shill for Vanguard in this thread, but their Target Retirement funds are a really great place to start. They definitely aren't the only company that offers these types of funds, but they have the lowest fees. That said, I think they under-index on international, so they aren't perfect. You might be able to find something with a better mix by hunting around, but early in your career I believe it is just more important that you are saving with a decent asset allocation, rather than trying too hard to slice and dice your way to the perfect portfolio.
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Jul 5, 2008 14:20
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-tito- posted:IF I may ask, what is the point of going back to your 401(k) plan after maxing out your employer match on your 401(k) and then maxing out your Roth IRA? Most 401(k) plans offer limited fund selections (easier to administer) that have higher loads or fees than other available options. It kind of depends on your tax bracket and 401k options. I would personally argue that the tax savings are worth the hit on ideal asset allocation for most 401k funds. If I was an active trader, there's no way I would be in a 401k beyond the match. But usually, a 401k has at least 1 or 2 funds that are *not bad*, and you can use the rest of your savings to compliment those choices. quote:Also, I think a lot of people of a younger demographic realize the need to be self-reliant in old age and are starting to enroll in 401(k) plans and Roths but then will put 0-20% (if they are lucky) down on a home and be stuck paying interest their whole lives. Does your $5000 a year into a Roth really offset hundreds of thousands of dollars in interest you pay on mortgages? Again, it comes to tax savings and your own personal situation. Let's say you can get a mortgage for 6%. Now let's estimate the tax deduction on mortgage interest reduces the effective rate to something like 4%. Yes, you are paying 4% interest (net of tax savings), but there is a very high likelihood that you can get a better return by saving in a 401k or Roth. In addition (and more importantly), investment vehicles like a Roth are only available up until a certain income limit, and only allow for a very limited investment each year. Therefore, it is extremely important that you take advantage of these programs while you can. There are no catch-up contributions for a 25 year old. Finally, while you personally are able to get 50% down on a condo, this is just not feasible for a lot of young workers. In many cities, this would cost at least $75. If you work for 7-8 years to save that money, you have missed out on the most important retirement savings years of your life and you will work that much harder to save for retirement going forward than the kid that started at 22.
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Jul 10, 2008 03:02
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abagofcheetos posted:For those that advocate index fund portfolios, is there any reason why you wouldn't simply select all 2x or 3x or 100x (I guess they don't exist... yet) bull funds instead of just the regular indexes? Personally, I want to be aggressive but not suicidal. Even at 26, I carry 15% bonds and fixed income. Not to mention that, being the load/fee hater that I am, swallowing a 1.5%+ expense ratio is not acceptable. To me, the risk and expenses are just not worth the extra return, when I know that staying on the path I am on will already lead to an early and lucrative retirement.
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Jul 10, 2008 03:15
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Febtober posted:I guess I'm looking for something "easy" to invest in myself. I currently have a Roth IRA set up with Vanguard with about $12k in it that's maxed out for the year. I'm also contributing 3% (the maximum my company matches) into a 401k from work, although it's worth mentioning that I don't really plan on being there long enough to get the full vesting from it. Sorry I've been gone from the thread for a while, I just found out I got a promotion and I'm being relocated, so life is a bit busy. Even if you contribute more to the 401k, matching be damned, you can roll that money into an IRA or a new 401k at your new employer. Plus you get the tax benefits today, which is always a plus. As for your current checking account surplus, the first thing to do would be to put together an emergency fund. I really liked this article for determining how much you should have socked away in a high yield savings account somewhere. The other thing you should do is put aside your Roth IRA contribution for next year. The limit will be $5,500. If you set it aside now, on Jan 1 you can transfer all of that in, and get the full year of tax free growth. Hope this helps..
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Aug 13, 2008 23:30
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zmcnulty posted:Alright, I'm hoping to get into the retirement savings boat soon enough. Here's my situation: In all honesty, I would be speaking with a certified financial planner somewhere here in the States. You have a complicated set of circumstances where it would benefit you to pay someone to make sure that you don't gently caress up. I'm honestly not too comfortable giving you any advice past that.
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Aug 13, 2008 23:32
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FateFree posted:When you guys say max out the 401k, does that mean that I have to contribute a max of $15,500, or does my employers match count towards the same maximum? $15,500 is the max that you yourself can contribute -- whatever employer match you get is separate from that amount.
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Aug 25, 2008 21:06
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waffle posted:So my girlfriend and I have an emergency fund/savings account of roughly $5000 sitting in a very low interest rate savings account. This is independent of our long term savings, which is in growth directed mutual funds and an IRA. You could always try and stack IRAs but for $5,000 the difference is going to be negligible and really not worth the effort, not to mention that you would be giving up some liquidity. Also to everyone, sorry for completely forgetting about this thread. Is there any information that any recommends I add to the OP now that a lot of time has passed?
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Dec 5, 2009 12:31
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I just recently moved to a new city and sold my home for a short-term (1–2 years) relocation for my job. I am renting in the new location because it is a short move, so I'm sitting on a fairly sizable chunk of cash that was previously wrapped up in home equity. I'm planning on buying another home in 1-2 years, once I move again. Is there anything I can really do with this money that's better than letting it sit in a savings account? I don't want to do anything that has more than very minimal risk since I will be using the money again shortly.
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Nov 6, 2011 23:09
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Holy poo poo, this thread is still alive. Uh...how badly has the stuff I wrote in the OP 12 years ago aged?
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Mar 5, 2020 19:27
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Hoodwinker posted:Honestly, people still recommend a lot of the reading in it. Wow. That's honestly pretty cool.
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Mar 5, 2020 19:29
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