I am Bobbie Munroe CFP, a NAPFA registered fee-only advisor in Atlanta (and soon, adding Tallahassee, FL). I am thrilled to be one of the advisors working with Kiplinger on this worthwhile event. Ask questions!
Welcome to this month's Jump-Start Your Financial Plan live chat! We have three NAPFA advisors with us today: David John Marotta of Marotta Wealth Management in Charlottesville, VA; Bobbie Munroe of Fraser Financial in Atlanta, GA; and Mitch Marsden of Longview Financial in Huntsville, AL. All three planners have participated in the Jump-Start chats before and we're excited to have them back. Thanks for joining us!
For those of you who are joining us for the first time, let me explain a little about how the live chat works: your questions will be submitted and held for moderation. Depending on the volume and complexity of reader comments, your question may not necessarily be approved right away. However, we will do our best to answer your question as quickly and thoroughly as possible!
Alright, let's go ahead and get started.
This is Bobbie Munroe CFP® in lovely Atlanta, Georgia where spring has sprung. I own a financial planning/investment management firm, Fraser Financial (www.supportingyourchoices.com). I look forward to "talking" with all of you today.
This is Mitch Marsden from Longview Financial Advisors, Inc. Glad to be here and excited to chat with you!
Mark, good question. It depends on the mutual fund. Each fund has different strategies, objectives, risks and similar parameters. Some funds will do that for you and yes, part of that is captured by the management fee. Other funds are more passive and still will follow the buy and hold strategy. All of this information can be found in the mutual fund's prospectus.
I'm not too anxious to bury "buy and hold." Indeed, if you look at it this way Mark, you buy and hold your investments and the fund managers do the rest. Even if you use indexing for all of your investments or the core portion, I think a good diversification strategy with periodic rebalancing still works just fine.
Mark, by the way, some are still very pro on the buy and hold strategy and an emphasis on strategic asset allocation rather than active management strategies.
Castillo, at this point, I typically recommend a good money market savings account as the rates are generally a little better and when interest rates rise, your account interest rate immediately rises as well. When rates get a little higher, short-term CDs or a good "CD Ladder" can be appropriate. If you are comfortable with it, online banks provide better rates, just make sure it is legitimate and FDIC insured.
Castillo, it is sooo boring but if you are going to need cash within the next 3-4 years, I suggest you keep it in cash. I know, savings rates are miserable right now. You can go to bankrate.com and get current rates offered by various vendors. I see that Ally Bank is offered 1.14% on a 2 year CD.
#Castilo: dittos. Get a bank CD maturing in 3-
Ally also offers a No Penalty CD (you could take the money out and reinvest if a higher rate comes along). It is 11 months at .93%
#Dave B: At age 65 we are still recommending 75% in equities and 25% in stable fixed income. Studies suggest that this is provides a better change of making your retirement goals than a more conservative strategy.
Castillo, in regards to your question on how much you need for your home, start by defining what kind of home you plan to buy and then look for a 20% down payment amount. Then make a plan to start saving the needed cash month to month to make it happen. I agree with Bobbie that you are likely better off saving in a cash type account when the goal is 4 years away. If you plan on a down payment of less than 20%, be prepared to pay mortgage insurance and or other fees depending on the loan type.
Castillo, I agree with a 20% downpayment if you can swing it.
Dave, I am going to suggest that you go see a planner and talk about this. At your stage of life, there is no need to take more risk than you need to take to reach your goals (if you are winning the football game with 15 seconds left and you have the ball, take a knee). With a planner you can see if what you have saved will fund your goals and what kind of return you will need to get. The more conservative the portfolio, the less residual value it will have at your death BUT the probability of success is much higher.
Dave B: I am glad to hear that you have had a favorable experience with your 401k. That allocation is higher than I normally would see for someone nearing retirement, but that doesn't mean it's necessarily wrong. I do agree with David's point that you may scale back a little bit. Also, if you have concerns about the specific funds, have an independent fee-only financial advisor take a look at them and give you an opinion. It is hard to give you more advice without better knowing more about your situation and the specific investments.
I don't want to confuse people people with the term "conservative" portfolio. Indeed if you are early in your retirement, you still have a long time horizon and you will need equities in the portfolio for growth to AT LEAST compensate for inflation. A 100% fixed income strategy is likey to fail for almost everyone except the extremely affluent (who are also low spenders). That said, if the savings are sufficient, we will go to a 60% fixed income, 40% equities portfolio for some of our clients.
Zach: In my opinion, it depends on the rest of your finances. Do you already have a relatively solid 'taxable' account built up? If not, you may be right that it would be better to build that up than contribute. However, if that is in place and you've already maxed out other tax advantaged vehicles, it still may be worthwhile to contribute to the 403b. The tax deferral benefits may outweigh the fees. Just would need to run the numbers and learn more about your situation now and goals for retirement.
I love DJM's comment on saving in taxable accounts. This will give you more "buckets" to pull from in retirement which gives you more options.
Where can people...: Keep in mind that there are risks with any investment, even keeping cash in a bank account. Sure, you don't lose principal, but you will lose purchasing power because it won't keep up with rising living costs. I would recommend that you meet with an advisor to better understand your risk profile, including your risk tolerance and goals. He/she can then help direct you in building a portfolio that is appropriate and balances the many risks that face all investors and savers
Well "where can people..." this is a very broad question. And as I said earlier, it largely depends on how much return you need to fund all your goals, something you can determine with the help of a planner. That said, Vanguard offers some target date funds that are low cost and invest according to the target retirement date. Look at the Target Date 2010 and 2015 funds.
#Where can: My favorite Paul Volker quote is: "You can't hedge the world." to which I would add, "and if you could, it would cost too much."
David John, I wish there was a like button for your last post:-)
Bella, at your age I would suggest 20-25% in the mid cap and 11-15% in the small cap fund. Historically small cap has returned the most BUT it is also the riskiest.
Bella, unfortunately I would not feel comfortable giving a direct and specific recommendation iwithout understanding your situation better. The others might be able to chip in, but one source you can use to evaluate various funds and find information on how they compare is morningstar.com
Bella, as for International, I used to use that Artio II Fund but I have been a bit disappointed in the last couple of years. If this and the William Blair fund are all the options you have, you do want to allocate money to them as this is your only way to get international exposure (less in the Blair as it is small cap). This is another good reason to save money outside of your company retirement plan. Then you can cherry pick the offerings in the plan and fill in the allocation gaps with your taxable or ROTH accounts where you can choose almost any investment.
Kate, I haven't done any specific research on apple stock as we deal primarily with mutual funds. We like the concept, like many advisors, of broad diversification. That said, many would be booed at suggesting that Apple would not continue to outperform the market. Only time will tell.