Richard, if you won't need the funds for the next 5 years consider a target date fund at Vanguard. It automatically allocates the stock/bond mix to your age. Or you can select one of their Lifestrategy funds for a mix of funds that maintains the same allocation over time.
Tannon, you can look on the Vanguard site to see which vanguard indexes the Target Date fund is currently invested in and in what proportions. You will also see how the proportions change as you age. The differences between the Target Date funds and some of the other Vanguard funds (ie Balanced) is often not that large.
GO YOUNG ADULTS! We have had a lot of them today. Your older self thanks you for tending to your finances earlier rather than later.
Thank you to the advisors who have been with us the last two hours!
We're into the home stretch. With us now we have Bobbie Munroe, Heidi Davis, Bonnie Sewell, Philip Lee and Tim Parker. Welcome!
northern california: The right answer is dependent on your tax bracket. Roth401(k) contributions come from after tax money. If you are over the 25% federal tax bracket, you may be better off contributing to the pre-tax 401(k). Your stock losses can offset up to $3,000 (if married, $1,500 if single) of any ordinary income, such as Roth Conversions. Any conversion of dollars from 401(k) to your Roth 401(k) would be considered taxable income.
Richard, actually, Vanguard allows you to invest very little into those Target Date funds if you do it regularly. I believe it's as little as $15/month. Please do check them out; the expenses inside the fund are some of the lowest in the industry.
Hi Snapdragon, I hit reply too fast - consider what the offerings are inside the Roth 403(b) - can I assume you'd be making this decision inside an overall plan? And congratulations on saving diligently. Try to consider the funds offered in the context of all/any other investments.
Hi Banjo - You might consider a broadly diversified index fund so that you will participate with the market without much deviation.
Thanks for joining us, geo!
northernca, first of all, are your losses in a taxable account? Losses in retirement accounts don't matter in general and even losses in taxable accounts can only be used to offset gains and create a net loss of $3K. Conversion from an IRA to a ROTH creates ordinary income so only $3K of the capital losses would be allowed. Even then, the losses would saving you money at the lower capital gains rates while the income from the conversion would be taxed at your higher ordinary income rates. The good news is tht I don't think you have to worry about any of that. I suggest you leave prior contributions as is. Allocate your future contributions to BOTH the regular 401K (which will give you the immediate benefit of current tax savings) and the Roth 401K (which will give you the benefit of tax free growth for many years). As we don't know the future, giving definitive solutions is usually difficult. so unlike Solomon, I often split the baby and do a little of both.
Oh, northernca, I meant to give you a big thumbs up as it seems like you are doing some great things with your money life at a very early age.
Richard, this is Bobbie but I suggest that you move your money to a discount brokerage like Vanguard, Schwab, TD Ameritrade, Fidelity or Scott Trade (to name a few). Most of the big full service brokerages only sell funds with sales charges. So if you want Vanguard, you might just go to Vanguard yourself.
Hi Angie, I thought I might take a swing at your question since I do a lot of divorce work and we want your wedding to lay the foundation for a beautiful and long future! I'd be a little concerned with investing anything in under 5 years for a timeline but that reflects my advanced age as much as not being able to predict what the market may do in a relatively short period of time. Is the $1K - $5k for the wedding or as a foundation going forward? If the wedding, and you're willing to assume all market risk for that time period, any 2 ETFs that reflect a broad market index would be a place to park it. But if it were my money for that time period, I'd simply consider it savings and try to get a little interest on it.
Hi ChrisM, on annuity questions, even I routinely seek an annuity specialist - I'll recommend you talk to Jerry Skapyak at Low Load Insurance in Florida. There is a flavor for just about anything and new ones coming on to the market all the time. I will say, please remember you buy the contract, not the nice conversation you have with the salesperson.
Lisa - I'm a firm believer in using index funds/ETFs for all assets. Why restrict that strategy to a portion of your total portfolio? If you believe you are getting good service and believe in the investment strategy of Edward Jones then use them. I think too there is value in keep your assets in one place for simplicity sake too.
Lisa, first of all, while some do outperform, most managed funds under perform index funds over time. I just read that this year 85% of managed funds are under performing index funds. Know that I actually do use A LITTLE actively managed funds in my portfolio but that they cost more to own as the annual fees are typically much higher. So I say you go with an index fund. If you want to keep it simple just use a target date fund from Vanguard. You might even consider moving some of the Edward Jones money. You have done an EXCELLENT job of stockpiling money for the future. But I do what you to know that it could be hard to make that $1 million last if you start drawing from it at an early age.
Hello Mikey - Low interest rates makes investing challenging. Bond values can only go up so high bringing interest rates down. Many think rates will eventually go higher and that will hurt bond values and are positioning in short and/or intermediate term bonds, not long-term bonds. These may not get hurt as much in a rising rate environment.
Angie, Excellent! In that case, start with a nice basket of ETFs like: VTI, AGG, IWB, IJS, VEA, VWO, VNQ, GOVT, VCIT, PCY. If it's $1k, start with US stocks, if it's $5k, mix it up a bit. Learn from this portfolio and then you can get more strategic as time goes on and the amounts go up. Good luck to you.
Richard, Schwab is a good choice and they offer Vanguard funds. You might have to pay $24 for the initial fund purchase (and nothing at Vanguard) but that seems so small that it might just be better to stick with the same account.
Snapdragon, thank you. I think you're trying to confirm that a mix of accounts will serve you well as you start distributions and if that's the case, I agree. We want clients to have a mix for many reasons and in particular to manage taxes on distribution. As you are likely feeling, we are in a high tax period and this is particularly challenging for retirees when they withdraw funds - did I answer your question?
Hi Marc - Your broad assumptions could be reasonable. Is the subject in good health? Good genes? If not, you might consider shortening the end of life. A 7.5% return assumption indicates to me that there will be a healthy amount of equity exposure throughout the projected period, especially looking at today's bond returns, so make sure that works for the risk tolerance of the subject.