OT: Beginning to Save for Retirement

[Upstream]

Yes that was a bad example since the Stock Exchange didn't open on 9/11. What I'm trying to point out is I could buy or sell ETF's at any time during the time the stock market is opened. I think you know what I mean.

I knew what you meant, and as I said, it is a pretty unimportant distinction, especially for index funds, and also especially for someone who has a long-term investment strategy for retirement. It is really hard to time the market, when you are looking at which month to buy or sell. It is essentially impossible for a casual investor to time the market to account for the hours difference in buying/selling ETFs or mutual funds.

Being able to sell ETFs any hour the market is open, vs having a mutual fund transaction take effect only at the end of the trading day, is a pretty meaningless reason to choose ETFs over mutual funds.

 

[miketd1]

I will just add:
1.) Pay down any debt with double digit interest rates.
2.) Work on that emergency fund (1K minimum while paying down debt; 3x monthly expenses preferred; 6mos optimal).
3.) Maximize your earning potential -- your biggest asset is YOU. Leverage it! (It is also obviously much easier to save the more money you make).
4.) ETFs FTW

 

[Phi_1055]

Different strokes for different folks. There are far too many variables in any one person's life to make any sort of recommendations based upon what information you can provide here. But there are a couple of universal rules:

- Save as much as you can as early as you can (you are by no means late with this)
- DIVERSIFY!!!!! (you seem to need to educate yourself with this)
- Never stop learning and always be prepared to adjust your portfolio and savings goals.
- If you need professional advice don't be too stubborn to pay for it. Mistakes can be very expensive. If you don't need professional advice don't waste money paying for it.
- if you don't have the time to properly manage your investments - be it stocks/bonds, real estate, a side business, or anything else - don't give yourself more credit than you deserve or overestimate what you can do. Hire people you trust to assist you or mange things.

 

[imbazza2]

I feel like a dummy after reading this thread, because I have a Northwestern Mutual Whole life insurance policy. I have term which is much bigger, like 5x's the amount of the whole life policy, but I do have a small whole life policy that I pay about $200 per month into. It's been running for about 2 years now. Are you guys saying I should cut this off or cancel it?
I do invest heavily into ETF's and a target retirement Vanguard mutual fund separately. I also have hit my 401k by 6% and the company matches that 6% too...

Should I dump my Whole life policy, or because I'm two years in, should I just keep it going? I viewed it as forced savings, and was old on the 7% dividend NW Mutual provides.

Gmay it is about comfort now. If it helps you sleep at night stay the course as you see it is a forced savings plan It is just not giving you a return you could make with other investments.

 

[RU Cheese]

I feel like a dummy after reading this thread, because I have a Northwestern Mutual Whole life insurance policy. I have term which is much bigger, like 5x's the amount of the whole life policy, but I do have a small whole life policy that I pay about $200 per month into. It's been running for about 2 years now. Are you guys saying I should cut this off or cancel it?
I do invest heavily into ETF's and a target retirement Vanguard mutual fund separately. I also have hit my 401k by 6% and the company matches that 6% too...

Should I dump my Whole life policy, or because I'm two years in, should I just keep it going? I viewed it as forced savings, and was old on the 7% dividend NW Mutual provides.

im not a life insurance expert by any means, but if you have a family (esp a young one), i think it's very important to have coverage. that said, I would look at it as a cost of doing business and NOT as an investment vehicle.

 

[RUfromSoCal?]

 

[zubz]

There are three asset classes, equity, debt and cash. Stocks, bonds and money markets. Any intelligent investor will hold all three, in percentages based on age and risk profile. A good rule of thumb for non-professionals is to have 110% minus your age in equity. In bear markets equity should be curtailed significantly. Nobody should ever have all equity. EVER.

I wasn't attacking you with my earlier post, I just didn't want OP steered the wrong way. I've been a broker, and I've spent the last 18 years in the 401k business. Nobody here hasn't shopped at one of our clients, or eaten or used or driven one of their products. We manage some of the biggest retirement plans in the country. This is what I do for a living.

So to be clear, since you do this for a living and you don't like steering people the wrong way. Your advice is to reduce equities when we are IN bear markets? Meaning sell stocks after they are down 20%? Or somehow are you doing this before the market is actually in bear market territory? Sounds like market timing and as you know impossible to succeed at.

The whole reason to NOT have 100% in equities is to have money available to rebalance and BUY stocks in a bear market.

You make some decent points but lose credibility when you recommend market timing to someone asking for advice on how to get started with investing.

 

[rutexan84]

I will just add:
1.) Pay down any debt with double digit interest rates.
2.) Work on that emergency fund (1K minimum while paying down debt; 3x monthly expenses preferred; 6mos optimal).
3.) Maximize your earning potential -- your biggest asset is YOU. Leverage it! (It is also obviously much easier to save the more money you make).
4.) ETFs FTW

Very good point. The first thing you should do is pay off high interest rate credit cards.

 

[RU'70]

You seem to have a good mind of what you want to do. I cringed when I read your opening sentence re: life insurance as an investment and took a sigh of relief when I read you torpedoed the idea. I am confident you can develop your investment plan without professional help. I am a devout believer in Vanguard funds--since the Friday before the market crash of 1987. Since you are talking long term, I don't see the advantage of ETFs versus traditional funds. At your age, I would stress Roth vs traditional IRAs.

The Vanguard website is loaded with information, before you call them, I suggest you check out the website. Also, get a book written by John Bogle on investing, you won't go wrong. One final point: It's
not rocket science--if I can do it, anyone can!

 

[robcac26]

Very good point. The first thing you should do is pay off high interest rate credit cards.

Fortunately, I don't have any debt right now, but I probably will need to start using my credit card again once I start saving, I'll just need to balance things out so I can pay it in full every month. My girlfriend has a significant credit card balance though and I suggested that she focus on paying that off first because I imagine it's just going to snowball to a point where she'll have to stop saving for the future for a while so that she can pay off her credit cards.

You seem to have a good mind of what you want to do. I cringed when I read your opening sentence re: life insurance as an investment and took a sigh of relief when I read you torpedoed the idea. I am confident you can develop your investment plan without professional help. I am a devout believer in Vanguard funds--since the Friday before the market crash of 1987. Since you are talking long term, I don't see the advantage of ETFs versus traditional funds. At your age, I would stress Roth vs traditional IRAs.

The Vanguard website is loaded with information, before you call them, I suggest you check out the website. Also, get a book written by John Bogle on investing, you won't go wrong. One final point: It's
not rocket science--if I can do it, anyone can!

Yeah I was skeptical of how glorious he made the life insurance seem, especially because I specifically said from the beginning I'm looking to open an IRA, and then when we met a week later he put together a plan that involved buying life insurance and disability insurance, which we didn't even talk about at the first meeting, and then opening an IRA sometime in the future. What made it even worse was that when I told him I was considering just starting an IRA through my bank or somewhere else, he tried telling me, "Well the bank isn't going to tell you about the fees," "They won't have your best interest in mind," etc. There's no way I'm trusting a pushy insurance salesman with my life savings.

 

[Babybull244]

http://survival401k.com/

 

[PSU20]

I was watching Warren Buffet on a CNBC interview a few years back. His advice was if you really don't know what you're doing with investing, you should; 1) max out your 401K contribution so you get the maximum employer match; 2) max out your IRA contribution - he said to go with a Roth. The money should all be put into an S&P 500 Index Fund - I believe he said Vanguard but it doesn't really matter which brokerage firm you use if you invest in the index funds. I'm taking his advice and putting my money in the Vanguard index fund.

Warren also offers some good advice many do not follow. "Be fearful when others are greedy, and greedy when others are fearful." He just mentioned that he has been buying stocks now when the market is getting crushed.

 

[Saint Puppy]

Also, one quick tidbit to the OP - don't know how much cash you have on hand, but you are able to still make a Roth IRA contribution for 2015 up until April 15th, and then also make your 2016 contribution. The max for each year based on your age is $5500.

 

[ru78]

Agreed. Don't buy life insurance for investment purposes. My preference is Roth > traditional Ira. Sounds like you are just starting your career so you should be below the income limits.

Use Roth if all other IRA (retirement investments are utilized)
Not enough information to give with what was provided
Take the $800.00 deduction and worry about the Roth when the company contributes

 

[ru78]

Thanks a lot for all the advice so far! Good to see popular opinion seems to be to avoid the life insurance. I wasn't sure if I was missing something obvious because in comparison to an IRA it doesn't seem to make sense.


I'm 28 and single with no kids. I'm in the 25% tax bracket but the maximum contribution to a traditional IRA would knock me down to the 15% bracket, although my boss alluded to a likely raise this spring that would put me in the 25% bracket either way so I'm not sure how much I want to consider that being a factor.

Consider whole life when your children are born.
Then let the dividend pay for the premium.
Interest will increase and time line will get much less today for the plan to match dividend/premium
But only buy quality whole life and it will not be cheap

 

[ru78]

Along with having some tax shelters and traditional IRA's, my wife and I made a habit of buying zero coupon Municipal bonds every month. Unlike a regular bond that pays dividends twice a year, a zero is a discounted bond which accrues in value over time until it pays off its face value. Depending on what interest rate it is paying and how long out you have it, you pay a percentage of its face value. These bonds are secure and are like financial time bombs for the future. If you are young enough, reinvest any matured bond into another larger zero. Look on line for them and any brokerage house handles them. Since we had no children, we felt secure in making our next move.
We both retired early (in our 40's) from our jobs and had a second career of running a B&B for fifteen years. Along with our pensions and the money from the B&B (which we sold), we lived a nice life. Even though we are now also on social security, we find ourselves with a lot more money than we ever expected.

Good move but interest are piss poor today
I was getting 8% when I bought them
Zero coupon bonds payed 1/2 of my 3 kids college

 

[Upstream]

Consider whole life when your children are born.
Then let the dividend pay for the premium.
Interest will increase and time line will get much less today for the plan to match dividend/premium
But only buy quality whole life and it will not be cheap

That's the purpose of whole life. It is a life insurance policy in which the investment part helps pay the premium. For many people, this is a more attractive option than term life.

I don't have an issue with insurance agents suggesting whole life for insurance purposes. That makes sense. But when they try to sell it as an investment vehicle, they are just trying to steal your money.

 

[ru78]

Fortunately, I don't have any debt right now, but I probably will need to start using my credit card again once I start saving, I'll just need to balance things out so I can pay it in full every month. My girlfriend has a significant credit card balance though and I suggested that she focus on paying that off first because I imagine it's just going to snowball to a point where she'll have to stop saving for the future for a while so that she can pay off her credit cards.


Yeah I was skeptical of how glorious he made the life insurance seem, especially because I specifically said from the beginning I'm looking to open an IRA, and then when we met a week later he put together a plan that involved buying life insurance and disability insurance, which we didn't even talk about at the first meeting, and then opening an IRA sometime in the future. What made it even worse was that when I told him I was considering just starting an IRA through my bank or somewhere else, he tried telling me, "Well the bank isn't going to tell you about the fees," "They won't have your best interest in mind," etc. There's no way I'm trusting a pushy insurance salesman with my life savings.

Tell the broker you are willing to buy the life plan if he is willing to split the commission
Then wait till the week before the 6 month and then cancel the plan
You should get back your money and he loses the commission but you have 1/2 of it
It has been done
Not ethical

 

[RUJohnny99]

Consider whole life when your children are born.
Then let the dividend pay for the premium.
Interest will increase and time line will get much less today for the plan to match dividend/premium
But only buy quality whole life and it will not be cheap

Versus 20 or 25 year term? What's he going to do with all that coverage when the kids are out of the house?

 

[ru78]

Versus 20 or 25 year term? What's he going to do with all that coverage when the kids are out of the house?

Turn it over and keep the cash or pay for a wedding

 

[czxqa]

So to be clear, since you do this for a living and you don't like steering people the wrong way. Your advice is to reduce equities when we are IN bear markets? Meaning sell stocks after they are down 20%? Or somehow are you doing this before the market is actually in bear market territory? Sounds like market timing and as you know impossible to succeed at.

The whole reason to NOT have 100% in equities is to have money available to rebalance and BUY stocks in a bear market.

You make some decent points but lose credibility when you recommend market timing to someone asking for advice on how to get started with investing.

I'm recommending diversification, not market timing. He also doesn't have stocks to sell, since he's asking about starting up. Then again, you can go ahead and not let the underlying facts of the question deter your rebuttal, why let facts get in your way?
Then again, let's look at your assumption. What is this bear market of which you speak? Has the S&P 500 or Nasdaq composite dropped 20% behind my back? If you think this is a bear market, I don't even know what to tell you. I've watched the NASDAQ go from 5,000 to 1,800 and picked fifteen wrong bottoms the whole way down. Maybe we'll end up in a bear market, maybe not. I don't know and nobody else does, so why don't we just go ahead and diversify?

 

[ru78]

I'm recommending diversification, not market timing. He also doesn't have stocks to sell, since he's asking about starting up. Then again, you can go ahead and not let the underlying facts of the question deter your rebuttal, why let facts get in your way?
Then again, let's look at your assumption. What is this bear market of which you speak? Has the S&P 500 or Nasdaq composite dropped 20% behind my back? If you think this is a bear market, I don't even know what to tell you. I've watched the NASDAQ go from 5,000 to 1,800 and picked fifteen wrong bottoms the whole way down. Maybe we'll end up in a bear market, maybe not. I don't know and nobody else does, so why don't we just go ahead and diversify?

I lost at least 30% at my last check with Schwab

 

[RBS05]

I'm recommending diversification, not market timing. He also doesn't have stocks to sell, since he's asking about starting up. Then again, you can go ahead and not let the underlying facts of the question deter your rebuttal, why let facts get in your way?
Then again, let's look at your assumption. What is this bear market of which you speak? Has the S&P 500 or Nasdaq composite dropped 20% behind my back? If you think this is a bear market, I don't even know what to tell you. I've watched the NASDAQ go from 5,000 to 1,800 and picked fifteen wrong bottoms the whole way down. Maybe we'll end up in a bear market, maybe not. I don't know and nobody else does, so why don't we just go ahead and diversify?

Then you should have just said "diversify" instead of "In bear markets equity should be curtailed significantly".

 

[zubz]

I'm recommending diversification, not market timing. He also doesn't have stocks to sell, since he's asking about starting up. Then again, you can go ahead and not let the underlying facts of the question deter your rebuttal, why let facts get in your way?
Then again, let's look at your assumption. What is this bear market of which you speak? Has the S&P 500 or Nasdaq composite dropped 20% behind my back? If you think this is a bear market, I don't even know what to tell you. I've watched the NASDAQ go from 5,000 to 1,800 and picked fifteen wrong bottoms the whole way down. Maybe we'll end up in a bear market, maybe not. I don't know and nobody else does, so why don't we just go ahead and diversify?

No, re-read your post. You are point blank recommending market timing. Also no where did I say we are or are not In a bear market so I'm not sure why you went off on a beat market rant?

Then you should have just said "diversify" instead of "In bear markets equity should be curtailed significantly".

Bingo

 

[RUnTime]

I'm looking to start saving for retirement but I need some help. My employer doesn't offer a 401k, although that will hopefully happen soon since our new GM mentioned that he wants to start providing benefits, but in the meantime I am looking to start saving on my own. People on here seem to know a lot more about investments than I do, so I thought maybe starting this thread would be helpful.

One of my coworkers is interning for Northwestern Mutual, so he set me up to meet with his mentor, who is trying to sell me life insurance as a long-term investment. After doing a lot of research, it doesn't seem like a very good investment. I eventually found out that he gets about 50% commission on the first year's premium with life insurance, but gets very little when his clients open IRAs, so I stopped meeting with him.

My bank (Unity) offers IRAs, but I haven't been able to meet with their investment guy yet. However, everything I read online seems to say that Vanguard is the best. Does anyone disagree and if so, why? Also some things I'm confused about before I go ahead with this:

(1) How do I calculate if a traditional or Roth IRA would be better tax-wise? I was able to determine that with a traditional IRA, I would owe about $800 less in taxes this year if I put the maximum amount into it, but how do I determine if those savings now are worth paying the taxes later?

(2) Do I need to know a lot about the stock market or are there experts that manage what I invest in?

(3) What sorts of fees should I expect?

Thanks for any help, and hopefully any info posted in here helps other as well.

Personally, I'm not a fan of the Roth, because I feel the government is going to change the rules and squeeze taxes out of them sometime in the next 60 years of your lifespan. I'd rather take a tax deduction today from a traditional IRA vs the promise of a tax free withdrawal in the future.

I also don't particularly like the Vanguard or other mutual fund option. I'd go with a broker (Scottrade or Schwab or whatever) that offers no load mutual funds. As the account grows, you're going to want to put some in individual stocks. You can't really do that with Vanguard, so you'd have to move the account. I don't think the benefit of saving 0.5% in fees each year ($5 per $1000 invested) warrants choosing Vanguard over others. You still have the flexibility to invest in mutual funds for no fee, but can branch out as you gain experience.

OP tread lightly on this site with responses like this.

You can set up a Vanguard brokerage account to buy stocks. Do some research and read some books on investing.

 

[RU31trap]

------
I can understand her not wanting the principal redeemed... After decades of saving just for the purpose of using it during retirement, it feels wrong somehow, because you have never took money out before..... I will probably start drawing out of non retirement mutual funds in the next couple of years, and I hate to do so, even though this was its purpose..... At least with an IRA you are required.

I too understand Whezzer. This nonsense of zero or 1% interest has to stop.

 

[anvilofstars]

Some people here are on reddit, so they have probably seen this, but it's worth taking a look at this once in a while. It has good tips for everything personal finance including retirement.

https://www.reddit.com/r/personalfinance/wiki/commontopics

 

[RU_Planning]

Would there be any reason to contribute to a Traditional IRA if you don't qualify for the tax deduction and already max out work 401k?

 

[zubz]

Would there be any reason to contribute to a Traditional IRA if you don't qualify for the tax deduction and already max out work 401k?

simply the money growing tax deferred. You can look up "backdoor Roth" and take advantage of that while it is still allowable. Just make sure you understand the rules.

What is your age?

 

[biazza38]

Save up 25k, find 4 other guys with 25k each, buy a 500k 4 or 6 plex with 10% down, put in 10k per door, hire a building manager and enjoy the positive monthly cash flow and equity .... then repeat.

I like this idea

 

[Scarlet Shack]

There is a lot of assumptions in this post that are based on the tax system being the same 30-40 years from now than it is today. Dangerous

I personally think that Its not savings for retirement needs to addressed, but preparing to meet your post employment financial needs that needs to be addressed, to which savings is one component

If you can truly save and never touch, the retirement vehicles mentioned here are all solid. But if you need to touch for life's funny turns or need liquidity for business purposes or opportunities that the market historic returns cannot provide, then leaving your dough outside of the vehicles provide those flexibility and just pay your taxes as you go l.

Those are decisions you have to make based on your career.

 

[robcac26]

Thanks again for all the information in this thread. I think I am going to go with a Roth IRA through Vanguard, and now I just need to decide what mutual fund(s) or ETF(s) I'm going to start out with. Obviously expense ratio is an important factor, but what else do you guys find is important to look at when comparing funds? Should I assume that if the 1-year and 5-year average annual returns are higher than the 10-year/since inception average annual returns, it will probably take a dip soon and vice versa, or is that not typically the case? It seems as though Vanguard's target retirement date funds would make sense, but I'm checking out the rest of what they offer as well.

 

[Upstream]

Thanks again for all the information in this thread. I think I am going to go with a Roth IRA through Vanguard, and now I just need to decide what mutual fund(s) or ETF(s) I'm going to start out with. Obviously expense ratio is an important factor, but what else do you guys find is important to look at when comparing funds? Should I assume that if the 1-year and 5-year average annual returns are higher than the 10-year/since inception average annual returns, it will probably take a dip soon and vice versa, or is that not typically the case? It seems as though Vanguard's target retirement date funds would make sense, but I'm checking out the rest of what they offer as well.

The Target Retirement Funds are the easiest way to go. They are essentially a balanced portfolio of the other Vanguard funds, and the allocations are managed so that as you get closer to retirement age, the portfolio becomes less stock heavy and more invested in less risky bonds.

The big advantage of the Target Retirement funds is that you don't have to put any effort into managing your IRA to follow conventional retirement strategies. The disadvantage is that you are locked into a conventional retirement strategy. If you want to balance your portfolio differently, or if you want to follow a different strategy (like keeping cash in a money market and moving it into stocks using a dollar-cost-averaging strategy or market-timing strategy), then you might want to put your money into a portfolio of funds. If you want recommendations on what portfolio of funds to use, look at the portfolio that makes up the Target Retirement fund for your age, and adjust from there.

 

[anvilofstars]

The Target Retirement Funds are the easiest way to go. They are essentially a balanced portfolio of the other Vanguard funds, and the allocations are managed so that as you get closer to retirement age, the portfolio becomes less stock heavy and more invested in less risky bonds.

The big advantage of the Target Retirement funds is that you don't have to put any effort into managing your IRA to follow conventional retirement strategies. The disadvantage is that you are locked into a conventional retirement strategy. If you want to balance your portfolio differently, or if you want to follow a different strategy (like keeping cash in a money market and moving it into stocks using a dollar-cost-averaging strategy or market-timing strategy), then you might want to put your money into a portfolio of funds. If you want recommendations on what portfolio of funds to use, look at the portfolio that makes up the Target Retirement fund for your age, and adjust from there.

This is my personal opinion so take it with a grain of salt, but as people live longer and longer, I think having a higher stock allocation at an older age is still better. Bonds are good too and you need those as well, but the returns are simply not there and if you retire at 65 and live to a 100 (not really that much of a stretch 35 years from now), you'll need your money to work hard for you to hit the right amount.

 

[RU_Planning]

Rubicoin has a couple of good apps to educate you on the basics. Seems like very levelheaded advice if you want to jump into stocks instead of mutual funds.
https://rubicoin.com/learn-app/
https://rubicoin.com/

 

[RBS05]

This is my personal opinion so take it with a grain of salt, but as people live longer and longer, I think having a higher stock allocation at an older age is still better. Bonds are good too and you need those as well, but the returns are simply not there and if you retire at 65 and live to a 100 (not really that much of a stretch 35 years from now), you'll need your money to work hard for you to hit the right amount.

Good rule of thumb if using a target fund is to choose one that's 10 years past your actual targeted retirement date. I don't use them, but if I did I'd probably keep on choosing a longer target fund. As you say, people aren't going to be able to survive on just bonds in retirement.

 

[zubz]

All good advice. I would just add that most of these companies have made changes the last few years so that there are indeed more equities across the various target date funds to account for longer life expectancy and the low yield world. So if you are going to choose a target date fund and trust the company to do this for you. I personally would choose the one that matches your age and trust they are already thinking of these concerns. Just my opinion.