Hi kzlink, Lynda and Eric -- we have you in the queue next :)
I agree with Beth that you should have an allocation to bonds. Depending on your age and income needs, bonds (some, not all) act as a stabilizing factor in a portfolio.
Hello Zac - Why do you want to buy a home now?
Hi Zac - the home-buying decision is a big one. Whether or not it's the right choice for you at this time depends on many factors: job stability, other assets, etc. I would encourage you to save for at least 10% down.
Welcome SKS and sam! We will get to you shortly. Just a reminder to everyone participating, if you miss the answer to a question, the transcript will always be here for you!
Looks like Zac may have stepped away, let's take one from Lynda in the meantime.
Hi Lynda - generally yes.
Lynda - yes. I agree with you.
Hi Lynda - in general, I have clients leave Roth money in place as long as possible. Exceptions may be an unusual event causing high taxes in a given year (sale of appreciated property), that would cause the 401k money to be taxed at a much higher rate - in that instant I may have a client take some funds out of Roth (assuming no other non-Roth non-401k funds are available).
Hi Eric - I think a foreign bond fund is a good idea, and I think the allocation you indicate also sounds about right - I often start with 10% of the total bonds. I put them in tax-advantaged accounts where/is possible
Zac - Buying a home does take away some flexibility. You will be saddled with a long-term mortgage payment, taxes that always seem to increase, and transaction costs and market value changes when you sell. Generally you should'nt buy if you are only going to be in a home for a few years. Be sure to not overburden yourselves with mortgage/taxes/insurance/maintenance costs - even if the bank is willing to lend you the money, make sure you are comfortable covering those costs. You might qualify for some low downpayment programs - you should speak with a mortgage banker/broker to get an idea of what you might qualify for.
Zac - in my personal opinion. I would consider buying a home. I would prefer that you have at least 10% down (20% even better) but building equity in your home at low rates is attractive. Obviously, consider job stability not only in your position, but also are you not
candidate to possibly relocate.
Hi SKS - well, you've certainly hit a "hot-button" topic. I have read more analytical approaches to varying the drawdown with the market return. Michael Kitces has written about this, I believe he's the a
Sorry - Kitces is the author of a paper on monitoring the drawdown. Recently there's been talk of using the IRA reguired minimum distribution amount as a guideline. Also, you may know, but the 4% rule applies to a 65 year old with a 60% stock/40% bond portfolio.
Hi SKS - This is an area under continual review and I'm afraid there aren't any hard facts that will always work. Obviously spending less is better, and you will need to react to both inflation rates and market movements in the underlying portfolio, so trying to hedge both of those factors may help give one confidence in making withdrawals in retirement.
Kzlink- also non-spouse beneficiaries cannot roll over the funds into their own Roth IRA.
Hi Orthodoc - There are a few things to think about with your NY portfolio. Are the strong ratings the underlying issuer ratings or the rating of bond insurers? There has been some concern about the soundness of the bond insurers, particularly if we see default rates increase sizeably. If the insurance wasn't there would you still want to own these bonds? The NY economy is closely tied to the stock market so if the stock market gets hit hard, so might NY municipalities and muni bonds. Other states might provide some helpful diversification and give you more comfort, but probably not any more income as it seems you live in NYC with high local taxes.
You're welcome. And to clarify: as non-spouse beneficiaries, they cannot bring the inherited funds into their own accounts. They must have a separate account that maintains the inherited status in the account titling.
Orthodoc - at 38 yrs old you have a long time horizon to invest so be sure to have opportunity for growth through equity. Hopefully you've got your 401k tilted that way.
Hi Nate - to clarify, I believe you're talking about a direct rollover of 401k to traditional IRA. A conversion means you're "converting" the funds, from pre-tax to post-tax, i.e. 401k to Roth IRA. I think either Vanguard or T.Rowe Price would be a great choice: lots of fund selections, reasonable expense ratios, etc. You could always split it up between the two.
Nate- I am very familiar with Vanguard and they do a really good job of helping clients with the rollover process. I like Vanguard for the low fees and Vanguard ownership structure. I am not familiar with TRowe's rollover process- I would imagine they make it easy as well.
Orthodoc - do you have some of the equities allocated to foreign?
Orthodoc - thats only ~20% of your total portfolio, so unless you are really risk averse, you might consider increasing that exposure.
Hi Eric - Believe me, predicting anything is not easy, so at my firm we generally make investments for the long-term and don't actively move between short, long-term and other bonds. We might hold all of these categories and move portions around when we see opportunities, but actively trading (predicting) is hard to do consistently.
Nate- is the $17k needed for emergency funding? or is this excess liquidity?
Eric - I think bond funds are more likely to decline than increase in the next year.
Hi Nate - that's a great rate for a cash/liquid account. If the second account is smallish (
Italy sounds nice but if you want to avoid injury, I would suggest adding to your current diversified portfolio, if you have one. There is not one specific idea that I or our firm would recommend. However, consider the asset classed in you portfolio that might be lower and consider adding to them.
Some of the asset classes that are current down year to date are emerging markets, many bond asset classes, commodities, and depending on the day.. real estate funds.
Nate - I'll finish my post - if the second account is smallish (
kzlink - without knowing the dividend rate and expenses on the life insurance I can't really say. Some older policies do pay well, and if the policy is big enough expenses don't consume too much of the dividend.
Nate, one more try: if the second account is
If the second account is less than $5k you probably need this for emergency fund.
Orthodoc - Adding foreign equity to your 401k is a fine idea if you have a good vehicle in your 401k. You probably have more choices outside your 401k, so look for a well-managed growth-oriented low-turnover fund to minimize taxes.
Orthodoc- Yes. I would consider adding to foreign exposure. 401k accounts might limit your options but outside of your 401k account, I would consider index ETFs. ETFs will eliminate the need to pick stocks and are considered more tax-efficient than mutual funds.
Nate: Note to self: do not use less than sign, spell out the word. Emergency fund amount depends on expenses, salary, job stability, etc. However, you could still consider moving some to a Roth IRA if you're eligible (single filer income less than $112k). It could still be liquid in the Roth, e.g .money market, and Roth contributions can be withdrawn at any time without tax or penalty.
Nate, thanks for the additional information. I would fully fund the Roth ($5500 if you're under 50); in January you could make your 2014 contribution with another $5500. That takes care of $11k. Depending on your risk tolerance, age, and 401k investments, you could consider investing the $6k (stocks or a mix or stocks and bonds) in a brokerage account, e.g. E*Trade.
You can research VWO/EEM for emerging markets. EFA for Foreign Large Blend exposure or ACWX for All world county index - ex US. International small, SCZ, is worth researching
