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How to Invest for Retirement
- Thread starter Piecake
- Start date
Randolph Freelander
Member
I wasn't specifically speaking of the Dow 30, nor it is the only one that has recovered. Pick any index you like, and you'll see levels now markedly higher than the peaks in 2007 before the collapse. If you were in bonds this entire time, maybe you didn't appear to lose your shirt, but I dare say you'd actually be worse off right now, and it will only get worse as time marches forward.
Again, I say this while feeling young and invincible and having already fully acknowledged that as I approach retirement, I'll likely feel much more conservative. But on the other hand, if this is a "once in 80 years event" (as they called it), and the worst market any of us are likely to live through, then an ultra-conservative strategy, say, 10 years out just seems awful silly.
Lagspike_exe
Member
Goverment bonds are guaranteed zero risk. The goverment cannot default on its bonds denominated in domestic currency (foreign currency bonds can default, there are a lot of examples). You can still lose money if the interest rates start to rise, though.
The issue with bonds is that they struggle to beat inflation, meaning that you will have less actual money when you retire than what you actually put in. If you need to actually grow your money so that you can have the retirement you want, bonds arent really a good choice.
Of course, bonds are a fine choice when you need a market hedge, but I am of the opinion you don't need that until about 10-15 years before you retire.
There really isn't any need to invest in any other fund than the ones I mentioned in the OP because those invest in everything. There is no reason to make things more complicated than they should be. You can invest in other index funds, but those would simply be sector bets (meaning you think a sector of the economy is going to out-perform the total market return). I don't think its really worth it because you invest in all sectors of the economy with those two funds I mentioned at their market-weighted price.
You got a good 401k if they offer the funds I mentioned
I am all about Index Funds. I posed this in the Stock-Age thread the other day:
Go Vanguard. Go John Bogle. I also like the Bogleheads® wiki.
I also posted this in the Stock-Age thread just before about holding bonds:
Go Vanguard. Go John Bogle. I also like the Bogleheads® wiki.
I also posted this in the Stock-Age thread just before about holding bonds:
I don't have any, just research and data that seems to support my position that simply investing in index funds is a far superior method for the vast majority of people.
As for my views on bonds, I pretty clearly gave my opinion and stated that others disagreed with me, but the most important thing is that you should do what you feel comfortable. That right there should be the only difference in a person's retirement investment portfolio.
As for the fees, I included the expense ratio of funds that they are likely to suggest in it, which is probably around 1% and has a turnover rate of 100% (which is about a 1% expense ratio), though that turnover rate might be mute in a tax advantaged account, ill have to look into it. Not that managers charge that much
And I do have a strong bias against investment bankers. I don't think they add any value and usually detract from it because they push you in funds that have higher than needed fees. I am sure there are some good and honest ones out there and help people who are struggling at what to do, and charge you per hour, not a percentage of your investment, but I see no reason for myself to pay for one since simply investing in index funds looks like the way to go for pretty much everyone
I use data to come to a position? What exactly is wrong with that? I provided links in my original post that show the superiority of index funds and index fund portfolio. And I am not quite sure why different people need different investment strategies besides differing bond allocation and maybe a few differences in index fund choice. Whats the rationale behind everyone having a 'unique' retirement portfolio? I just dont get it. Why exactly would their personal or financial circumstances come into play when planning for retirement besides the amount that they can actually afford to invest? Only thing I can come up with is if they want an annuity or something
There is a lot more to investing if you want to beat the market. If you just want to follow the market it really is quite simple
What do you guys think about Employee Stock Plan.
I work for a utility company and the company matches 11% or whatever amount of company stock I purchase. The upper limit of the match is pretty high. I can sell the portion of the share after owning it for 12 months. Again its a stable power utility company with dividends.
Do you guys recommend sell them every year or hold on it them and wait for a high price to sell? When I sell it I have to pay tax for that portion of the profit.
I work for a utility company and the company matches 11% or whatever amount of company stock I purchase. The upper limit of the match is pretty high. I can sell the portion of the share after owning it for 12 months. Again its a stable power utility company with dividends.
Do you guys recommend sell them every year or hold on it them and wait for a high price to sell? When I sell it I have to pay tax for that portion of the profit.
I don't see PIecake's plan as highly aggressive. I see it as moderately conservative. I'm never going to have bonds. I plan on accumulating a few million USD in 30 years in today's value. When I retire, I'll live very comfortably off about 5% average interest (150K/year in today's USD). If there's a recession when I retire, I reduce my annual sellings a bit. If after, then I need to do nothing because I'll be selling a bit less than it grows on average meaning that 3 million became 4+ million. Bonds get beaten by inflation. 5+ years they are garbage.
Disclaimer: My plan is probably extremely aggressive. It depends on your time horizon, income, etc. Some people cannot stomach 50% market drops.
Disclaimer: My plan is probably extremely aggressive. It depends on your time horizon, income, etc. Some people cannot stomach 50% market drops.
Manmademan
Member
Not exactly. You're speaking of FEDERAL bonds (which are unlikely..though not UNCERTAIN to default, see last year) but not government bonds in general. States issue bonds. municipalities issue bonds. both of those two have higher risk levels than federal by law.
I mentioned the vanguard municipal bond fund early in the thread (because I'm a big fan) because that's a collection of state level and below funds that while are not zero risk, are lower than the stock market yet higher than federal.
You want to see shit hit the fan, wait 40 years when my gen is "retiring". I see a lot of folk in this thread with savings and 401k talk, none of which exists for a lot of folk increasingly over the years. I don't think i can count more than 3-4 people i work with that have any sort of retirement plan. And hah, Social Security! I'm sure that'll still be a thing.
Book it, total poverty old person meltdown in 30-40 years time. Soylent green is people i eagerly await the clinics.
Book it, total poverty old person meltdown in 30-40 years time. Soylent green is people i eagerly await the clinics.
I have something like that at work. It may actually be a good deal, but I completely ignore it. The idea of putting significant amounts of assets into a single stock irks me. Even giants can fail. I feel much safer in stock index funds in broad sectors of the world economy. Each of my stock index funds has at least 100 stocks.
These are the 3 funds I have for my "house fund" (basically growing cash after I max IRA and max 401k matching):
VSMAX
VHDYX
VTIAX
Everyone has access to an IRA. And I think a number of people who think they can't save for retirement can if they make a budget and do some serious cutting. It will probably suck, but it'll suck worse if you don't have any retirement savings. I really don't see SS going away or being significantly changed. It is remarkably stable and the only people who suggest otherwise are deliberately misleading you or don't know what they are talking about.
As for the retirement crisis, Itll probably happen sooner than that. I made a thread on the retirement crisis a while back
http://www.neogaf.com/forum/showthread.php?t=712237&highlight=
But this was the most important/disturbing thing out of all of it
Yup, apparently the average 55-64 year-old american only has 12k saved up for retirement.
I'm glad my Dad uses a similar strategy as I do, and is ready for retirement. I think there will be some SS reform, but more than likely a lot of boomers are going to live in poverty and heavily rely on their children.
Yeah I was just being conservative in my doom and gloom scenarios. Anyway, all this means is people simply aren't retiring, and overall average lifespan will actually decrease.
I've been dumping as much as I can into my 401k since I started working 8 years ago.
The balance in there has grown pretty well in those 8 years. (Over 185k at age 31).
Also have an IRA opened that I try to max each year.
Stinks not having as much money now cause I'm planning for the future ... but I don't think I'll want to do SHIT after I retire.
I also work for a utility company and currently my company stock amounts to 21.45% of my entire 401k portfolio. My company also matches pretty highly.
The balance in there has grown pretty well in those 8 years. (Over 185k at age 31).
Also have an IRA opened that I try to max each year.
Stinks not having as much money now cause I'm planning for the future ... but I don't think I'll want to do SHIT after I retire.
I also work for a utility company and currently my company stock amounts to 21.45% of my entire 401k portfolio. My company also matches pretty highly.
I would probably take advantage of that since it seems like too much free money to pass up. However, I would make sure that the company stock only amount to 10-20% of my portfolio. 20% is probably necessary when you are first starting out, but you can eventually widdle it down to 5-10% of your porfolio.
So yea, I would probably take advantage of it, sell most if not all 12 months later, and move those funds into index funds. Its definitely more risky than simply doing index funds, but man, that free money.
Baraka in the White House
2-Terms of Kombat
I've always wondered how the hell you're supposed to know what your tax rate will be two or three decades from now.
It's not really 20%, its how much percentage of my last 12 month income I want to put into company stock. Employee stock older than 1 year can be sold without penalty.
Yeah, this is huge. For me I see stocks as owning percentages of companies, and that recessions are temporary devaluations of that ownership. I plan for the dips.
A lot of people don't see it this way, don't take the time to understand risk, or are simply emotionally intolerant of these swings. These people benefit from different strategies and, yes, even professional help.
It's like preferring Linux as an OS because it has complete control. It's not for everyone.
I'm betting it's going up, but because I like to diversify I have 401k traditional and IRA Roth.
Longer term what if life extension happens and wealth is redistributed from portfolio hoarders like me because fundamentally society cannot allow immortal people to become beyond trillionaires? I guess that's where property diversification comes in.
GoldenEye 007
Member
I have a pension I just started through the state of Florida and a TIAA-CREF account.
Haven't been contributing to the account as much as I should, though. Seems like I have a good mix of distribution, though.
Pension is 8 years to vest...
Haven't been contributing to the account as much as I should, though. Seems like I have a good mix of distribution, though.
Pension is 8 years to vest...
I said I would probably take advantage of it based on the information he gave. He asked for opinions and I gave it. But I like that you turned my probably take advantage into a recommendation and my 5-20% holdings into a 20% holding. What I meant by 20% holdings is based on the amount he has to invest. If he has a small amount, it will likely have to be a high number, but as he invests more he can get that down.
I also took his question to be about the concept of investing in company stock, not whether that stock was particularly good or not since how can you give that recommendation when you don't even know the company's name? Perhaps I was wrong to assume that he has or will do research on said company stock before investing in it, but there you go.
And if you think you know so much more about investing and retirement than enlighten me. Criticizing isnt very useful if you don't give an alternative viewpoint besides its different for everyone and talk to an adviser. You actually need to know a bit about the subject before you talk to one because I think even you can admit that there are shady advisers out there.
And I am not really sure how my choice of words indicate that I came to my position first before I looked at data. How can you possibly tell that? It sounds like that your opinion here is based more on your bias towards my viewpoint than anything.
This... this is all the type of shit I need to learn.
The trouble is with my current limited knowledge I have a hard time telling the difference between real sound reasonable advice and overly aggressive plans that sound reasonable on paper but are really pretty ridiculous.
Need to advance my knowledge but I usually learn by doing and making mistakes. Don't have much room to do that here.
The trouble is with my current limited knowledge I have a hard time telling the difference between real sound reasonable advice and overly aggressive plans that sound reasonable on paper but are really pretty ridiculous.
Need to advance my knowledge but I usually learn by doing and making mistakes. Don't have much room to do that here.
RustyNails
Member
SomewhatGroovy, I know where you are coming from but your criticism is misdirected. People who want to take their advice will do so, those who don't will not. This is not a professional finance management board with certified bankers. It's a forum where we like to play videogames. Without advice from people like Piecake, Cyan, Opiate and GhaleonEB who are complete strangers but are being generous to offer what they learned, I would have 0 investments. Going to personal/investment/hedge fund bankers for investment advice is not only daunting, but it keeps a middle man in between. I'll go to an investment banker when I have a million bucks to spare. Of course they want to help you maximize your return, but they also want to make money. Here there is no such agenda and for that I am happy.
Manmademan
Member
the tax rate on investments is always the "capital gains" tax rate, usually the "long term capital gains" rate unless you're day trading.
This is very, very, very easy to predict (it's currently one rate no matter how much you make) and if there are any changes it's national news.
For reference: Canada has bracketed Capital Gains tax.
RustyNails
Member
This might be a dumb question, but can you switch to a lower paying job close to retirement when you want to take your 401k money, and fall under lower tax bracket?
Manmademan
Member
15% in the US, though its typically higher. It will probably go up if the republicans ever get voted out of the house, but not by much.
Manmademan
Member
see my above answer. investment income (like 401k, IRA, or bond income) is "capital gains" no matter how much you make. It's currently 15%, which is WELL below even the lowest income tax bracket. 16 year olds working at mcdonalds pay a greater percentage of their income than you will in retirement.
Baraka in the White House
2-Terms of Kombat
So if my 401k allows me to contribute a certain percentage of before-tax and after-tax income, wouldn't be better to contribute it all as before-tax?
I edited my post, sorry. Canada has bracketed capital gains tax. I don't believe we have a difference between short-term/long-term.
In British Columbia e.g., it's anything between 10% and 22%
distributions from 401ks and traditional IRAs are taxed at you income tax-rate, not the capital gains rate. If it was otherwise, it would make absolutely no sense to invest in a Roth IRA
Randolph Freelander
Member
401k is not assessed capital gains. You pay ordinary income tax on disbursements, if you are in a pre-tax account, and marginal tax rates apply. (If your employer offers it, you can participate in a Roth 401k and contribute after tax, similar to a Roth IRA.)
Manmademan
Member
ah, that's my mistake then. I was assuming the tax rate on 401K/IRA was capital gains.
Baraka in the White House
2-Terms of Kombat
The three options my company has for putting different percentages of my contribution into are A)before tax account, B) Roth 401(k) account, and C) after tax account.
Shit's confusing.
Manmademan
Member
What do they even mean by before tax account or after tax account? Personally, i prefer accounts where you pay income tax now and no tax later, like a Roth 401k or a Roth IRA because I like that its a hedge against uncertainty. Its probably good to have a mix of the two because you will 'likely' have a higher income tax when you are working than when you are retired (so 401k and traditional IRA make sense), but you never know.
401k and traditional IRA also have the benefit of lowering your taxable earnings, which could make you eligible for tax credits, thus making your tax bill even lower, or reduce your student loan payment if you are on the income based repayment plan. So there is that consideration as well.
I do a 401k and a Roth IRA and have no complaints
Randolph Freelander
Member
Maybe I'm dumb, but I would think B and C are the same thing.
The thing about Roth 401K is that it has the same contribution limit as the traditional, pre-tax 401K, and you can mix and match total contributions up to that limit (17500 for the current tax year) if you wanted to contribute to both a pre-tax and after-tax plan. This contribution limit is separate from the Roth IRA limit (5500 in 2013, assuming you're below 50, not sure if it got an adjustment in 2014), which you can use in addition to whatever 401k strategy you use.
My thinking on Roth is this: every dollar you contribute to that is taxed at the maximum marginal rate you could qualify for before it gets there. You avoid taxes when you get disbursements after you reach 59.5, but it costs you maximum taxation up front, as those dollars literally come off the top of your income where the taxes are highest, and you're paying those taxes now. On the other hand, if you contribute pre-tax, you have to pay taxes on the backend, except some of those dollars will be taxed at the lowest possible marginal tax rates, as you'll pay 10% up to a given amount, then 15% through another amount, etc., and rates are subject to change. At the same time, you're subtracting dollars from the top of your income now and avoiding the highest marginal rates on it.
Do some math. Are you making a lot of money now? Avoid the high marginal rates now and contribute pre-tax. Are you making less money now? Avoid the higher marginal rates in the future and pay the low marginal rate now and contribute after tax. I say if you could afford to max out a Roth 401K contribution, you're obviously making enough money where avoiding high marginal rates now would be beneficial, and you could probably afford instead and with (probably) roughly the same net money to max a pre-tax 401K and a Roth IRA.
But in the end, you'll want to consider your own situation perhaps along with a financial planner. I'm some nobody musing on the internet, not giving advice at all.
Freezie KO
Banned
Thanks for the thread. I need to be saving more than I am.
MidgarBlowedUp
Member
Decent thread, but won't work for part time min-wage employees
Now, if you do work for a company that has a good 401k and matches part of what you put in, just put in the min amount they match, and put the rest in something else like a bank that is FDIC insured. Like start stacking CD's or just keep putting savings in a money market. Assuming you want to play it safe.
Now, if you do work for a company that has a good 401k and matches part of what you put in, just put in the min amount they match, and put the rest in something else like a bank that is FDIC insured. Like start stacking CD's or just keep putting savings in a money market. Assuming you want to play it safe.
Yeah, that's a big burden. Part of my retirement plan is to inform my parents regularly about savings and investment. I also frequently ask them about their assets. The more money they have and the more comfortably they live in their retirement, the less stress I have and the more money I can actually save for my retirement. Actually having potential heritage is just a nice plus to the former.
thoseAREmySHOES
Member
My bachelor's degree in finance, thankfully, makes it pretty easy to set myself up right, even with very little work on my part. I'm set up in a Roth 401(k) through my employer... I'm doing 4% contributions per paycheck, which is the maximum my employer will match. And I'm in funds that start out aggressive and slowly move towards conservative as I approach my target retirement age. Boom.
What a great post. Thank you, Piecake. One thing I don't understand with the Vanguard fund you linked to is that the initial investment minimum is $3,000. Let's say I do that. From that point on am I just dropping my $100 here and there into the fund and it compounds away, or does it work some other way? Is there a transaction fee every time I add to the fund?
demosthenes
Member
The only thing I don't like about these 3, is that their "since inception" is really short.
Its just the admiral shares that are new. Admiral shares mean that you pay lower fees if you have a larger balance. The actual funds have been around for a long time, but with the investor shares that have slightly higher fees and allow lower balances.
They're new, but the stocks they contain are not. Look at their benchmark and what they're composed of.
For example, look at the top 10 holdings of VHDYX:
1 Exxon Mobil Corp.
2 Microsoft Corp.
3 General Electric Co.
4 Johnson & Johnson
5 Chevron Corp.
6 Wells Fargo & Co.
7 Procter & Gamble Co.
8 JPMorgan Chase & Co.
9 Pfizer Inc.
10 AT&T Inc.
And the top 10 of VTIAX
1 Nestle SA
2 Royal Dutch Shell plc
3 HSBC Holdings plc
4 Roche Holding AG
5 Novartis AG
6 Vodafone Group plc
7 BHP Billiton Ltd.
8 Toyota Motor Corp.
9 Samsung Electronics Co. Ltd.
10 BP plc
These companies will be around and profitable for a long time.
VSMAX you may not recognize many because it's small cap. And a word of caution for those looking at those 3 funds and salivating on the performance of VSMAX - small cap is higher performance long term but is much more volatile.
If your moral compass doesn't react to owning cigarette companies and junk food companies, then look at those stocks as well. Look at Altria's dividends over the last 30 years. They are enormous.
I'm interested in this. I've looked into it somewhat but never researched fully.
When I look at my Roth 401k, I can see that my contributions are tax free and are labeled as "tax free contributions". But when I see the employer match and any additional employer contributions, they are categorized separately. So I am assuming that when I go to withdraw them, they will not be tax free.
Is this sort of backdoor diversification? Do I have a Roth 401k and a traditional 401k inside my Roth 401k?
Unfortunately, the only way for me to tax diversify is to get a traditional 401k. My IRA options are limited. Nondeductible TIRA is stupid so I backdoor into a Roth IRA. Only downside is now both of my vehicles are post-tax.
If I were in a similar situation as you I would reinvest that company stock into a different sector. You've got a lot of eggs in one basket. Just look at what happened to the people working at Enron. Lost their jobs and their investments.