Saving for the future.

[BrianSD_42]

. Soooo when the market corrects, which yes it eventually will, everything will be on sale. Time to buy more, not hide in cash

This I agree with. Which is why I was saying if someone has extra non-retirement cash flow and is considering making early payments to their housing loan at 4% interest it certainly would be a good option to:

Assuming your retirement is already funded to annual max 401K plus IRA then use your leftover:
* Take some of the cash and make early loan payments (after paying off all CC if applicable)
* Take some of the cash and keep it in a money market or short term CDs
* Take some of the cash and put it in the market so you don't feel like you are missing out but this would be lowest priority.

I mainly push back at the notion the market will go up, that this market is special, that this time is unique and it is especially untrue that anyone here or anywhere knows for sure that in 2025 the market will be higher than it is today. It might crash in 2020 and not break even again until 2028. These are simple facts of what has happened in the not so distant past and could happen again.

When the crash comes the best place you can be is cash flush and debt free. If 30 million people lose their jobs then paying those mortgages is going to get hard real fast. Those who have lower debt and cash savings will be able to wither the storm. So for the guy considering paying off his loan a bit early do a split approach. Make some early payments and keep some cash or do a 3 way split like I mentioned above.

But don't "just put it in the market" you might be about to lose a lot of it and maybe you won't be getting it back until 2025.

 

[Fern]

I am doing this.

Paying essentially an extra mortgage payment a year, but is only saving me around $75K, and shortening my loan 6-7 years. Really it more of a piece of mind thing.

Maxing out my Roth IRA with ETF's.

Additional investing into my other IRA's when I have some extra cash for more ETF's.

In reality, I do believe that taking the money which I am using to pay down my loan faster will yield me a greater monetary reward if it was used to purchase more ETF's. But, it is more of a comfort thing knowing I will be paying the mortgage down faster.

 

[BrianSD_42]

I am doing this.

Yes it is mainly about when you will need those returns, how old you are. All of my (small) retirement is in the market as I posted a few comments back. I'm a huge believer in the market over 15-20 years but I'm not a believer that it will give returns for sure over 5-10 years anymore. It can be really risky out there. So my long term future is in the market not I fully expect it is loose 1/4 - 1/3 value during some kind of a crash coming soon.

Now is not a bad time to have your short term cashflow be directed into a money market fund or pay down debts (eg early parents) while keeping your retirement fully in the market.

BTW, I find it well interesting that when I mentioned a short list of funds that are 5 star rated by MorningStar and my age that the response is basically "I can't tell you if that is good or not" ummm what? I mean no offense when I say this answer doesn't add up for me. This is a basic question and anyone should be able to bless or curse a rated fund, you don't need to pay an advisor but one certainly knows what's good out there and what's not. The funds I mentioned are on the top list for lowest fees, highest returns from well distinguished sources. I understand not wanting to give out financial advice to strangers on the internet but everyone has already been doing that this entire thread.

Here is an example of a great fund you can invest in. This fund has beaten most managed funds by a Longshot and the fees are near 0. Everything is publicly disclosed and rated.

VTSMX Vanguard Total Stock Mkt Idx Inv Fund VTSMX Quote Price News

Low Fee TOP RATED Index Funds

Low fee means 0.05 vs 1%.

FBGRX | Fidelity® Blue Chip Growth Fund (20%)

FXAIX | Fidelity 500 Index (25%)

FNCMX | Fidelity® Nasdaq® Composite Index Fund (20%)

VTSAX | Vanguard Total Stock Market Index Fund Admiral Shares (25% FYI one time $75 fee)

Not an index fund but I keep it as a hedge.
FDRXX | Fidelity Cash fund …. Near 2% (10%)

:bat:

 

[AKmoney]

What do think about these pics... been working great so far. Please let me know, I do want to hear it. The near 0% fees and lack of an additional advisor fee seemed like the right way to go. Warren Buffet recommends this approach.

FBGRX | Fidelity® Blue Chip Growth Fund (20%)

FXAIX | Fidelity 500 Index (25%)

FNCMX | Fidelity® Nasdaq® Composite Index Fund (20%)

VTSAX | Vanguard Total Stock Market Index Fund Admiral Shares (25% FYI one time $75 fee)

FDRXX | Fidelity Cash fund …. Near 2% (10%)

You could simplify. Put the entire thing into VTSAX and call it done. Actually, I'd probably put some of it into international stocks - maybe 30%. The Vanguard equivalent is VTIAX.

You shouldn't have to pay a fee to invest in it, though. If you don't invest at Vanguard, it's better to look for the equivalent fund to VTSAX that trades commission free at wherever you invest. For example, if you have your account at Fidelity, you can trade ITOT (iShares Total US Stock) commission free.

Also: I like buying ETFs in taxable accounts, especially when they're commission free. ETFs are more portable between brokerages and it can be handy if you ever start chasing brokerage new account bonuses by transferring holdings. For tax-advantaged accounts like IRAs or Roth IRAs, I like Mutual Funds. Again, buy the fund equivalent that trades commission free (ie, if your IRA is at FIdelity, buy FSKAX).

Lastly: I like BofA/Merrill Edge. Free commissions and really nice credit card cash back bonuses if you can hit one of their Preferred Rewards tiers.

 

[BrianSD_42]

You could simplify. Put the entire thing into VTSAX and call it done. Actually, I'd probably put some of it into international stocks - maybe 30%. The Vanguard equivalent is VTIAX.

You shouldn't have to pay a fee to invest in it, though. I

Doesn't putting your retirement all in one fund negate the rule of diversification? I will stick with splitting it up. But I do agree all of these stock market based index funds are very incestuous anyways.

The one time fee I mentioned is only for Fidelity customers who make a trade with a Vanguard account. It is one time $75 with 0% reoccuring fees moving forward. If you are a Vanguard customer and you want to buy Fidelity fund a similar one time fee is likely.

To each their own but no I would not personally put 35% in international. I think world growth is slowing down and between Brexit and the dumpster fire that is the European Union I am not bullish on the world markets in any way.

ETFs are more portable between brokerages and it can be handy if you ever start chasing brokerage new account bonuses by transferring holdings. For tax-advantaged accounts like IRAs or Roth IRAs, I like Mutual Funds. Again, buy the fund equivalent that trades commission free (ie, if your IRA is at FIdelity, buy FSKAX).

Lastly: I like BofA/Merrill Edge. Free commissions and really nice credit card cash back bonuses if you can hit one of their Preferred Rewards tiers.

I am not sure about any of that but it doesn't sound like it applies to me. I won't be making trades with any long term funds. Besides I don't have much anyways, I am just a noob with 25 years of work ahead of me.

 

[AKmoney]

Doesn't putting your retirement all in one fund negate the rule of diversification?

Ordinarily yes, but a total market index like VTSAX/FSKAX/VTI/ITOT/whatever is diversified by definition. Each of these investments cover the entire market and are made up of something like 3000 underlying stocks. There's really no need to buy anything else, unless maybe you were trying to give your portfolio a small-cap or value slant. There are plenty of arguments either for or against that.

But I do agree all of these stock market based index funds are very incestuous anyways.

It's not that they're incestuous; it's just that most of the major investment houses all offer their own version of it. Vanguard's tend to be the most popular but like I said, it's best to buy the one that's commission free at whatever brokerage you invest at.

There's lots more information here:
Three-fund portfolio - Bogleheads

I am not sure about any of that but it doesn't sound like it applies to me. I won't be making trades with any long term funds. Besides I don't have much anyways, I am just a noob with 25 years of work ahead of me.

Suppose you're at Fidelity and you've been regularly buying shares of ITOT because you can buy them there without commission. Then let's say Schwab offers a $500 new account bonus for transferring assets over to them. You can move the ITOT to Schwab without selling it - there's no tax event. It's called a custodian transfer. Once you're at Schwab, rather than buy ITOT you can buy SCHB instead - Schwab's own equivalent which trades commission free over there. ITOT and SCHB aren't exactly the same investment but for all intents and purposes, they're close enough.

If the market ever turns south, you can also start playing the Tax Loss Harvesting game between similar (but not identical) ETFs. We'll save that for another time, though

 

[BrianSD_42]

Why does it matter to me whether fidelity gives a commission payment to the agent when I make the one time trade into ITOT or VTIAX?

I am not even making trades, like I said index funds are long term low fee investments that you don't mess with and they ride the market.

Usually if you are currently in Fidelity then you buy Fidelity versions of these funds since there is no fee. And if you are in Vanguard then you buy the Vanguard version at no fee cost.

But even if you did want to cross buy and pay the one time $75 fee, it really doesn't matter who gets that fee or commission since you are requesting it. Plus I don't think these companies pay their employees to steer people into funds with 0.05% fee ratings. They pay them commissions to go into managed funds. I paid the one time (per decade) $75 to be partially in the VTIAX since it was so highly recommended. Not a big deal at all.

Personally I just researched what I liked and then its done. I won't be making ANY trades this year, or next, or the next.

And as for rolling into one institution vs the next just to take advantage of $500. That seems pretty ridiculous and not worth the hassle.

:high5:

 

[AKmoney]

Why does it matter to me whether fidelity gives a commission payment to the agent when I make the one time trade into ITOT or VTIAX?

I am not even making trades, like I said index funds are long term low fee investments that you don't mess with and they ride the market.

I buy index funds every two weeks (VTI and VXUS in my case, commission free at BofA/Merrill). Every time I get a paycheck, I transfer a little into my brokerage account and add to my position. My strategy is to dollar-cost average into these funds on a regular basis, therefore it's critically important to do so commission-free. The alternative is to sit on an ever-increasing pile of cash that earns little interest in a savings account at a rate less than inflation (negative real return). Not to mention large cash stockpiles also trigger unwanted behavior, like big purchases of unnecessary gadgets or vehicles, so preventing that is a good thing

Plus I don't think these companies pay their employees to steer people into funds with 0.05% fee ratings. They pay them commissions to go into managed funds.

Fidelity has lots of ways of making money. They reach out to me every so often with offers to come in and talk about my long term investment needs. I politely decline them. I've got it on my own. They can make money off other people.

And as for rolling into one institution vs the next just to take advantage of $500. That seems pretty ridiculous and not worth the hassle.

To each their own. It's free money. Would you trade ten minutes of your time for $500? That's about how long it'll take to submit the paperwork for an account transfer

 

[AKmoney]

BTW, one thing I wanted to point out: Suppose you wanted to "diversify" your investment in VTSAX by also buying a S&P 500 fund (ie FXAIX). The net effect on your portfolio is that you'd be slanting it more heavily towards the 500 largest companies. An S&P 500 fund is an investment in the top 500 companies by market cap, whereas VTSAX is the top 3000+. It's spread out more. In reality, you'd have a disproportionate amount money invested in the biggest companies (ie Microsoft, Google, Facebook, Amazon, etc).

 

[BrianSD_42]

I buy index funds every two weeks (VTI and VXUS in my case, commission free at BofA/Merrill). Every time I get a paycheck, I transfer a little into my brokerage account and add to my position. My strategy is to dollar-cost average into these funds on a regular basis, therefore it's critically important to do so commission-free.

Thank you for clarifying. That makes much more sense. I see what you mean now. In my case my retirement rolled over when I changed companies and it is those funds. The new company I work at is totally separate and all new retirement is going to that new fund so I really won't be making any additional investments into fidelity any time in the future.

It's spread out more. In reality, you'd have a disproportionate amount money invested in the biggest companies (ie Microsoft, Google, Facebook, Amazon, etc).

Regarding this comment, if you see the original funds I posted those all add up to 100%. So the diversification is mainly across multiple funds. Also I do not believe there are very many, if any at all, funds that are able to match the S&P 500 consistently over the last 5 years while at the same time not being deeply invested in tech. Everything (IMO) that is keeping up with S&P 500 from 2013 - 2018 for example has been invested in tech and that means deeply invested in all of those companies. That is the incestuous part. Yes you could go to the international markets but that is risky, way more risky than US stocks.
.

 

[AKmoney]

Thank you for clarifying. That makes much more sense. I see what you mean now. In my case my retirement rolled over when I changed companies and it is those funds. The new company I work at is totally separate and all new retirement is going to that new fund so I really won't be making any additional investments into fidelity any time in the future.

My current employer uses Schwab for our 401k plan. I do participate in this, so every two weeks an investment is made via payroll deduction into a couple funds offered there, with SWPPX (Schwab's S&P 500 fund) being one of them. My regular VTI/VXUS buys are made outside the scope of the 401k. I do it on my own. The 401k investments are tax advantaged, but I can't touch them until I retire. The other investments *aren't* tax advantaged but I can access them at any time and likely will as a mechanism to enable early retirement.

Regarding this comment, if you see the original funds I posted those all add up to 100%. So the diversification is mainly across multiple funds. Also I do not believe there are very many, if any at all, funds that are able to match the S&P 500 consistently over the last 5 years while at the same time not being deeply invested in tech. Everything (IMO) that is keeping up with S&P 500 from 2013 - 2018 for example has been invested in tech and that means deeply invested in all of those companies.

You are correct. Maybe I wasn't clear - I was trying to point out that adding an S&P500 fund to a Total Stock Market fund doesn't really do much of anything. If you look at historical returns of say, VTSAX vs. the SP500 (FXAIX, SPY, IVV, doesn't matter - pick one), you'll see that they're nearly identical. Therefore IMHO, no need to invest in both. I like to keep things simple, and prefer the Total Market funds over SP500 (where available) because they *are* more diversified (~3000 stocks vs. 500), even though it doesn't make a whole lotta difference to overall return. In some cases - such as my company's 401k plan - a Total Market investment choice isn't offered but an S&P500 fund is, so I choose that.

 

[jordanrb81]

So, I'll just point out that one of you (AKMoney) seems to be doing a better job of tax diversification than the other (BrianSD42) this is as important if not possibly more important than asset diversification. When you reach retirement, it seems all three of us are somewhere between 35-40 so whatever that is for you, 20+ years from now you want about 1/3 in ROTH 1/3 in Traditional IRA and 1/3 in non-qualified accounts. This is because these monies in retirement behave very differently and you can leverage them in different ways. if you reach retirement and EVERYTHING is in qualified accounts, it can be difficult to pivot into some of the more advanced income strategies.

 

[BrianSD_42]

I'm glad you brought this up and what you say is a good point.

But I don't believe i ever said that total retirement plan is split as above, if I implied that sorry. That is just the one plan that rolled over. I am employing a 3 tier strategy exactly as you mention. I just haven't brought it up or talked about it. The 100% I mentioned only refers to a rollover of a single company account. I had to choose between managed or unmanaged and for that portion I chose the above splits.

I agree for sure that IRA + Roth + other is a great strategy.
.

 

[AKmoney]

Here's a useful tip about Roth IRAs not many know (and I didn't know until recently).

Once your Roth IRA is 5 years old, you can withdraw your contributions tax-free and penalty-free at any time for any reason. For this reason, make sure you keep detailed records of your annual Roth IRA contributions (save all those Form 1098s, or at least capture the information in a Google spreadsheet). This could come in handy if you retire early and ever need some "income" to bridge the gap to social security.

 

[Kandor]

Here's a useful tip about Roth IRAs not many know (and I didn't know until recently).

Once your Roth IRA is 5 years old, you can withdraw your contributions tax-free and penalty-free at any time for any reason. For this reason, make sure you keep detailed records of your annual Roth IRA contributions (save all those Form 1098s, or at least capture the information in a Google spreadsheet). This could come in handy if you retire early and ever need some "income" to bridge the gap to social security.

You can take out your contributions penalty/tax free at any time. Earnings are subject to the 5 year holding period.

 

[AKmoney]

You can take out your contributions penalty/tax free at any time. Earnings are subject to the 5 year holding period.

I stand corrected.. thanks!

 

[eddielasvegas]

Check your company's expense ratio for the S&P fund. I'll bet it's nowhere near as low as Vanguard's S&P 500 fund. IIRC, at the the time, Vanguards was .05%.

My company was 3X what Vanguards was. Highway effing robbery, but we had no choice.


Eddie

...but an S&P500 fund is, so I choose that.

 

[Pegharir]

Bumbo, I don't know how old you are, but guessing you are young. Time is your friend, use it wisely. Starting early is probably the best key to having something in the future. The fact you are asking these questions, means you are probably already well ahead of many.
You might find this guy very interesting, and enlightening. Mr Money Mustache. Lots of really good stuff there. Good luck

Agree

 

[ran]

My medium sized company started a 401k maybe in 1998. I started with 25% in US large cap, US small cap, REIT, and International. Later I stretched out to 8 funds and retired in 2007 with 130K in 401K roll over. I know those were pretty good years and bad years. The Fund Manager thought I was one of the superiors because I had a good amount. No, just a worker in the company.
Start now, it is never too late. Paid cash for my house and truck.
________________
2007 SE V6 titanium

 

[Oldmanb777]

So, I'll just point out that one of you (AKMoney) seems to be doing a better job of tax diversification than the other (BrianSD42) this is as important if not possibly more important than asset diversification. When you reach retirement, it seems all three of us are somewhere between 35-40 so whatever that is for you, 20+ years from now you want about 1/3 in ROTH 1/3 in Traditional IRA and 1/3 in non-qualified accounts. This is because these monies in retirement behave very differently and you can leverage them in different ways. if you reach retirement and EVERYTHING is in qualified accounts, it can be difficult to pivot into some of the more advanced income strategies.

This is something worth thinking about. I retired recently. I didn't plan well enough for the tax consequences of Qualified money. When you want to spend what you have, they really hit you hard. Worth putting some thought into it if your young. Even Medicare gets into your pocket for additional money if you try to pull too much from you qualified accounts.