Looking for investment advice

[bbhaag]

VTSAX has a 0.04% ER, and the Target funds have a 0.16% ER. On top of that, VTSAX straight outperforms the Target funds. So with a Target fund, you'll realize a lower percentage of likely lower gains. With VTSAX, you'll realize a higher percentage of likely higher gains.

I do appreciate you taking the time to post and what you're saying does make sense. Unfortunately I may have overestimated the amount I have to invest when I first posted. After talking it over with my wife we feel more comfortable with maybe investing around $3000 to start. Knowing that I went ahead and chose the 2050 target fund.

Thanks again everyone for chiming in and giving advice. I will probably ask for more in the future as we head down the path to retirement.

 

[Engineer]

I need ideas on how to invest our extra income. Our goal is to have around 2million saved by the time we retire(approximately 20-30 years from now). Looking at the typical tax deferred retirement options offered by the government our goal does not seem achievable.

There's no guarantee but if you have a 30 year horizon, it's very achievable. Of course, the market can crash, real estate can go crashing with it, banks can fail, etc. I felt the way you did when I was much younger. After awhile, the gains from your investments dwarf the new money you're putting in (of course, not in down market years, lol).

I like the old buy an S&P500 Index fund with low expense and put it to work. I'm sure there are other funds that many will recommend here.

Good luck!

 

[DaveSimmons]

I do appreciate you taking the time to post and what you're saying does make sense. Unfortunately I may have overestimated the amount I have to invest when I first posted. After talking it over with my wife we feel more comfortable with maybe investing around $3000 to start. Knowing that I went ahead and chose the 2050 target fund.

Thanks again everyone for chiming in and giving advice. I will probably ask for more in the future as we head down the path to retirement.

Good work acting on this. One last thing to do is check your settings at Vanguard -- I haven't looked in awhile but at one point you needed to be set up for paperless / email-based reports from them to avoid any account fees. With just $5,000 you might also need to set up a monthly transfer (something small like $100/month) until you have more money invested with them. There's no sense in losing $30 to fees unless you have to.

 

[purbeast0]

Do not start trading stocks. For 99% of people who try that it's gambling not investing.

The easiest and safest thing to do would be to open a regular brokerage account at vanguard.com and put 100% into their Target <year> fund.

It's a low-expense fund made up of their other low-expense index funds where the amount put into bond funds starts small but grows over time. One fund, fully diversified. Just add more money every year. No thought or effort needed, and you get the safest stock based investment you can make.

If the Target 2045 / 2050 versions have too much in bonds for your taste you can pick a later retirement date like 2055 / 2060 to be more aggressive.

You could do the same thing with a brokerage account at Fidelity or Schwab but then you'll pay a trading fee to buy Vanguard shares.

This might be a really stupid question, but bear with me because I am not financially savy when it comes to this stuff.

I realized last year I make too much to contribute to Roth IRA. I already do the 401k thing so I'm looking for someone else to put the Roth IRA money into + some more probably. I already have a vanguard account where I do my roth and rollover 401k. I actually have the roth in the target index fund around when I plan on retiring (2040 or 2045 I think). So there is some other type of account I could just open up with them and just put straight up cash into, kind of like how I did with the roth, where I can select the same target index fund?

Or is there something else that would be more recommended to invest in?

And if I were to do that, is it something I can just take money out of whenever, without penalty?

 

[brianmanahan]

This might be a really stupid question, but bear with me because I am not financially savy when it comes to this stuff....

So there is some other type of account I could just open up with them and just put straight up cash into, kind of like how I did with the roth, where I can select the same target index fund?

2 options:

1. a backdoor roth IRA, where you create a non-deductible traditional IRA, add money to it, then convert the whole thing to a roth IRA. it's weird but you're allowed to do it every year so it completely bypasses the roth IRA income limit.

2. a mega backdoor roth IRA, where if you have a 401k that allows it, you contribute after-tax money to your 401k then roll just that money into your roth IRA every year or so. this lets me put like 30$k into my roth IRA every year instead of 5.5$k. but not every company has a 401k that allows it. gotta ask HR or the plan provider and see if yours does.

also you can just open a taxable account and do whatever you want with it. that has the least restrictions but then you have to include yearly dividends and capital gains in your taxes. it's not too hard though.

 

[purbeast0]

2 options:

1. a backdoor roth IRA, where you create a non-deductible traditional IRA, add money to it, then convert the whole thing to a roth IRA. it's weird but you're allowed to do it every year so it completely bypasses the roth IRA income limit.

2. a mega backdoor roth IRA, where if you have a 401k that allows it, you contribute after-tax money to your 401k then roll just that money into your roth IRA every year or so. this lets me put like 30$k into my roth IRA every year instead of 5.5$k. but not every company has a 401k that allows it. gotta ask HR or the plan provider and see if yours does.

also you can just open a taxable account and do whatever you want with it. that has the least restrictions but then you have to include yearly dividends and capital gains in your taxes. it's not too hard though.

Shit you just reminded me I think my company might have even started a Roth 401k after I joined the company. Can you do a traditional 401k and roth 401k, where the contributions to each don't count towards each other?

 

[brianmanahan]

Can you do a traditional 401k and roth 401k, where the contributions to each don't count towards each other?

nah, the combination of traditional + roth 401k contributions is limited to 18$k per year.

BUT, after-tax contributions to a 401k are neither traditional nor roth. if your plan allows them, the applicable limit is the 415 limit: combination of traditional + roth + after-tax + employer contributions must be less than 54$k.

so hypothetical scenario: if you contributed 18$k to traditional 401k and got a 4$k employer match that would put you at 22$k. if your employer allowed you to make after-tax contributions, the 415 limit would cap that at 54$k - 22$k = 32$k.

in reality, your employer might now allow those contributions. or it might not allow you to roll them over to an external roth IRA while you're still working there (aka doing an "in-service withdrawal"). or even if they allow these contributions and let you do in-service withdrawals, they could possibly cap it to some arbitrary dollar amount or salary percentage cap. hence the need to talk to HR to find out the feasibility.

 

[bbhaag]

Good work acting on this. One last thing to do is check your settings at Vanguard -- I haven't looked in awhile but at one point you needed to be set up for paperless / email-based reports from them to avoid any account fees. With just $5,000 you might also need to set up a monthly transfer (something small like $100/month) until you have more money invested with them. There's no sense in losing $30 to fees unless you have to.

Thanks for the heads up on the fees. I checked and I'm setup for paperless statements so no issue there. I do have a question about the other account fee you mentioned. I only invested $3,000 not $5,000. Are you saying if I don't have at least $5,000 invested in the fund they will slap me with a fee or are you saying I need more than $5,000? You weren't very clear and I had trouble tracking down the info on Vanguards site.

Now I did just get $25,000 disbursement so if I need to bump up the amount to $5k I can but if I need more then that to get beyond the minimum for account fees I might just have to suck it up and pay them until I get to the minimum.

 

[ringtail]

So I'm at the point in my life were I'm maxing out my wifes and my traditional IRA's. I also have a SEP-IRA that gets the max contribution from my business. We have some cash in money markets and of course the traditional saving/checking accounts. Our asset to debt ratio is very low.

I need ideas on how to invest our extra income. Our goal is to have around 2million saved by the time we retire(approximately 20-30 years from now). Looking at the typical tax deferred retirement options offered by the government our goal does not seem achievable.
We have around 15k to invest outside of the plans I've already mentioned. What would you guys suggest we invest it in? Do I need to sign up for a Fidelity account and start trading stock or do I pick mutual funds? I'm at a loss here on how to achieve our retirement goal and could really use some advice.

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https://www.tastytrade.com/ (Especially the LIZ & JNY show)
The main show is 2 boozy old guys...(one was a co-inventor of the fabulous ThinkOrSwim...which...ALAS! TD Ameritrade got gontrol of and charges up the yingyang on commissions...utterly noncompetitive) But on their web site you can learn SO MUCH from the WONDERFUL Liz & JNY show ---it's 2 smart old ladies, both ex-CBOE floor traders, who talk WAY too fast, who you have to study up in order to understand. WORTH THE EFFORT (according to my trading account balance!)

 

[DaveSimmons]

Thanks for the heads up on the fees. I checked and I'm setup for paperless statements so no issue there. I do have a question about the other account fee you mentioned. I only invested $3,000 not $5,000. Are you saying if I don't have at least $5,000 invested in the fund they will slap me with a fee or are you saying I need more than $5,000? You weren't very clear and I had trouble tracking down the info on Vanguards site.

Now I did just get $25,000 disbursement so if I need to bump up the amount to $5k I can but if I need more then that to get beyond the minimum for account fees I might just have to suck it up and pay them until I get to the minimum.

Sorry, I'd need to search the site just like you. They should have a listing of the current fees somewhere, I haven't looked in years. $3K + paperless might be free, it might not. I remember (years ago) that for low balances they did waive the fees if you set up automatic monthly contributions from your bank account of X hundred dollars which is a decent way to give yourself "dollar cost averaging."

 

[Tweak155]

This might be a really stupid question, but bear with me because I am not financially savy when it comes to this stuff.

I realized last year I make too much to contribute to Roth IRA. I already do the 401k thing so I'm looking for someone else to put the Roth IRA money into + some more probably. I already have a vanguard account where I do my roth and rollover 401k. I actually have the roth in the target index fund around when I plan on retiring (2040 or 2045 I think). So there is some other type of account I could just open up with them and just put straight up cash into, kind of like how I did with the roth, where I can select the same target index fund?

Or is there something else that would be more recommended to invest in?

And if I were to do that, is it something I can just take money out of whenever, without penalty?

On top of what was already mentioned, make sure you're reducing your taxable income as much as possible. While my wife and I would earn over the cap of what is allowed to contribute to a Roth IRA, we have enough pre-tax contributions to bring us back under that limit. The obvious is 2x401k ($18k to each), but I also max out my HSA which is pre-tax contriubtions as well, another $5750 on top ($6750 is the max but my work puts $1k towards it for me).

Also some HSA's allow you to invest contributions, which can grow tax free just like a 401k. The caveat being that it is only tax-free as long as you eventually use the funds on medical expenses, but you're likely to have these later in life and would not need to draw on your other retirement accounts to pay for them. Also, if you withdraw from your HSA past the age of 63 (I think - you should double check) for non medical expenses, it is only taxed as a long term investment and there is no other penalty. It really is a good option if you ask me.

 

[s0me0nesmind1]

On top of what was already mentioned, make sure you're reducing your taxable income as much as possible. While my wife and I would earn over the cap of what is allowed to contribute to a Roth IRA, we have enough pre-tax contributions to bring us back under that limit. The obvious is 2x401k ($18k to each), but I also max out my HSA which is pre-tax contriubtions as well, another $5750 on top ($6750 is the max but my work puts $1k towards it for me).

Also some HSA's allow you to invest contributions, which can grow tax free just like a 401k. The caveat being that it is only tax-free as long as you eventually use the funds on medical expenses, but you're likely to have these later in life and would not need to draw on your other retirement accounts to pay for them. Also, if you withdraw from your HSA past the age of 63 (I think - you should double check) for non medical expenses, it is only taxed as a long term investment and there is no other penalty. It really is a good option if you ask me.

Mind if I ask, whom is your HSA custodian?

As far as the HSA - Yes, yes, and yes.

But also, you can have medical events right now (in 2017) and then when you want to retire in 2035 or something you can take that money out tax free based on your 2017 medical expenses (and every year inbetween). I just spent a boatload on hospital events this year, and not a single penny of my HSA is coming out until I want to retire.

 

[dullard]

Mind if I ask, whom is your HSA custodian?

As far as the HSA - Yes, yes, and yes.

But also, you can have medical events right now (in 2017) and then when you want to retire in 2035 or something you can take that money out tax free based on your 2017 medical expenses (and every year inbetween). I just spent a boatload on hospital events this year, and not a single penny of my HSA is coming out until I want to retire.

That is the right way to do it. Investing long-term with an HSA is tax free on the contribution income, tax free on the gains, and if you use it for medical spending it is tax free on the withdrawals. Nothing else comes close. A 401k or IRA taxes you on the withdrawals. A Roth IRA taxes you on the contributions. Post-tax investments taxes you on all three.

My HSA was originally with one of the three banks that I use. But it was recently sold to Optum Bank. Optum is one of the few places that lets you invest in Vanguard funds with an HSA. My account is fee free, although that is because it was fee free with the original bank and they kept the fee structure with the transfer. Unfortunately Optum does not publish their fee structure for new accounts as far (as I can tell) until you start an account so be wary of that.

 

[Tweak155]

Mind if I ask, whom is your HSA custodian?

As far as the HSA - Yes, yes, and yes.

But also, you can have medical events right now (in 2017) and then when you want to retire in 2035 or something you can take that money out tax free based on your 2017 medical expenses (and every year inbetween). I just spent a boatload on hospital events this year, and not a single penny of my HSA is coming out until I want to retire.

I don't know if I want to specify who I specifically go through... I will just mention that you aren't restricted to whoever your employer uses, you're free to shop around and the account stays with you. The only restriction is that you can only contribute to an HSA if you and your family are covered by a HDHP (health plans with $1300 or higher in deductibles (single), $2600 if married). As to when you withdraw the funds, you can be covered by any health plan you choose, and it is completely tax free as long as it is used for qualified expenses (which is generous if you ask me, it's not simply your doctor bills).

I'm not 100% sure about withdrawing based on claims from previous years (I know you can do this, just not sure what the rules are), I would imagine that as long as you were only covered by a HDHP, this should be fine.

One more note is that if you have a child, you can set up a dependent care FSA alongside an HSA (it cannot be JUST an FSA, it specifically has to be dependent care FSA) and use those funds pre-tax for any daycare expenses. Another way to reduce your income by up to $5k. This money however can ONLY be used for care purposes and does NOT rollover yearly. I do this though because my child is in daycare and the money is guaranteed spent.

Finally, also if you have a child, if you open a tax-advantage education plan such as a 529, some (most) states allow those savings to not be taxed for your state income taxes, and is tax-advantaged federally.

 

[zinfamous]

I suppose that both are valid options, but I would still go for VTSAX for now. Perhaps transition into something a bit more diversified in the future. I have a substantial amount of money invested with Vanguard in VTSAX, and it's treated me very well. If you look at the 5yr charts, you're missing out on 20%+ growth by going with a Target, plus the 4x ER. I diversify through other means -- real estate, patents, etc.

While I agree with you, and this is currently what I do, you're also looking at growth during the current, unusually long bull run on the market. It is actually a bit unprecedented. ...even so, if the plan is for long term (let's say 25+ years), you really can't go wrong just putting it all into a Total stock index fund, because outside of a meteor strike, the shit isn't really going to hit the fan hard enough to permanently nuke the value of the market. ...I also like the argument that with VTSAX, you are investing in foreign markets, because of course Apple and Microsoft and GE and Nabisco, et al, have very large foreign presence. So while you aren't directly investing in specific foreign companies, you are still pretty well exposed to foreign value.

anyway, I'm going to step outside of the box, because these threads always have the same advice:

Bet it all on black, OP!

 

[zinfamous]

I don't for two reasons:
- It's a lot more work than just sending a check or bank transfer to Vanguard.
- It's much higher risk when you only have 1 or 2 properties. Risk does go down when you have $500 million worth so a few meth labs, hoarders and deadbeat squatters fighting eviction don't hurt you much.

I'd rather spend my free time reading a book, watching a movie, playing a game, etc. than dealing with property.

Invest in REITs. There you go: you get to be an owner of hundreds of Real properties without any of the work.

 

[flunky nassau]

Let me offer another approach that may have a chance for higher returns than an index fund that most are mentioning here, but of course there is more risk.
There are 10 sectors in the stock market. Buy 1 or 2 high dividend paying blue chip companies with growth from each sector (for diversification), and re-invest the dividends, letting the power of compounding take over for 20-30 years. Make sure you stick it in a tax-sheltered account like a Roth IRA so that you don't pay taxes on all those dividends every year. Here's an example portfolio:

Energy: Exxon / Chevron
Materials: Bemis
Financials: JP Morgan / Wells Fargo
Industrials: General Electric / Lockheed Martin
Technology: Microsoft / Intel / Qualcomm
Consumer Staples: Altria / Proctor & Gamble
Consumer Discretionary: Coach / Target / Delta
Telecom: ATT / Verizon
Utilities: Dominion Resources / American Electric
Healthcare: Johnson & Johnson / AbbVie / Pfizer

The Dividend Aristocrats is also a good place to look for stocks since these companies have raised their dividend yearly for the last 25 years.
http://www.dividend.com/dividend-stocks/25-year-dividend-increasing-stocks.php

Of course you will have to monitor for disruptive secular trends, but usually these stable companies find ways to
adapt. Of course Amazon is the biggest disruptor right now.

This is my approach. My 401k is invested in an S&P index fund, and my Roth is into these individual stocks. I also have a brokerage through Etrade where 10% of my portfolio is trying to hit homeruns with commodities and hedging with gold miners.

Hope that gives another perspective.

 

[jpiniero]

Almost missed the part that OP is probably not 40... yeah he's not going to retire. Don't know how he will be able to get a job 20-25 years from now though, when all of the middle class jobs are in China or India and the lower class jobs will be automated, but he'll have to look. Investing is still useful in case you need the money at some point, but don't expect much in the way of returns, especially once the stock market finally reverts to the mean in terms of P/E.

 

[brianmanahan]

Almost missed the part that OP is probably not 40... yeah he's not going to retire. Don't know how he will be able to get a job 20-25 years from now though, when all of the middle class jobs are in China or India and the lower class jobs will be automated, but he'll have to look. Investing is still useful in case you need the money at some point, but don't expect much in the way of returns, especially once the stock market finally reverts to the mean in terms of P/E.

well then, he should obviously blow his money and lose his job and live under a bridge

 

[tortoise]

make sure you're reducing your taxable income as much as possible

Preposterous . . you should feel obligated to contribute as much as possible toward reducing the federal budget deficit, and supporting the subsidized!