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 Post subject: Roth IRA
PostPosted: Mon Oct 22, 2012 8:28 pm 

Joined: Sun May 29, 2011 4:50 am
Posts: 181
I know I should have been saving in previous years but I'm "starting late." I've got about 10k in my Roth IRA (from last year and this year) that I've put in an Etrade account. As a beginner, I think I've made some mistakes in buying and selling stocks with the money and of course not doing all that well.

I'm ready to invest in a "set it and forget it" type funds. I've read a lot of good things about Vanguard but I'm not sure what other "total market funds" I should be looking at.

Is there any advantage in moving it from Etrade to Vanguard or Fidelity or should I just leave the money where it is?


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 Post subject: Re: Roth IRA
PostPosted: Mon Oct 22, 2012 9:27 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 818
I believe you post is labeled incorrectly.

Your question is that of what to invest in, not which vehicle to.

I suggest a book, Boglehead's Guide to Investing. It will be (most likely) at your local library.

Stock "picking", which I assume you are doing, is bad for many reasons, but for someone like you, 2 reasons stick out in my mind.

1) With the amount of money (and probably knowledge) you can not overcome risk which can be diversified away. This risk is easily eliminated, and therefore you aren't compensated for absorbing it.

2) "Picking" stocks is incredibly difficult to be correct on timing. The old saying of "buy low, sell high," indicates 2 events. So, if you're lucky once your odds don't increase of being lucky twice.

3) You're getting eaten alive with trading fees, especially if you are trying to diversify at all.

Okay, that is 3 reasons. I could go on and on....

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Roth IRA
PostPosted: Mon Oct 22, 2012 9:49 pm 

Joined: Sun May 29, 2011 4:50 am
Posts: 181
You're right. At one point, I thought I was interested in trading strategies but after a few months, I've come to the realization that I don't have the education or resources to do any kind of active managing of my money. I'd like to focus my attentions on saving more/spending less and just need an investment that keeps pace with the stock market.

At this point, my question is whether to keep the Roth IRA money at Etrade and buy VTSMX or whether there's any advantage of buying VTSMX through Vanguard.


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 Post subject: Re: Roth IRA
PostPosted: Tue Oct 23, 2012 7:07 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 818
What are the fees? where ever you are now to buy that fund? plus, you'll have the normal expense fees of the mutual fund.

Personally, if that was the fund you wanted, I would rollover (assuming you haven't done so in the last year) to Vanguard. It is really easy. Call vanguard.

If you truly have $10k, I'd buy VTSAX instead.

Read the Boglehead's book.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Roth IRA
PostPosted: Tue Oct 23, 2012 5:28 pm 

Joined: Sun May 29, 2011 4:50 am
Posts: 181
I've put the Boglehead book on hold at the library, so hopefully I'll be able to pick it up tomorrow. In the meantime, I've sold my other stuff in my IRA (MBDFX, PRNHX and CYS). Thanks for the tip. I'll probably post more after I've had an opportunity to read the book.

I've had some successes with paying off consumer debt, cutting down expenses, an emergency fund, and developing savings plans. I'm just having a really hard time figuring out what I should be focusing on next.


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PostPosted: Sat Oct 27, 2012 3:55 pm 

Joined: Sun May 29, 2011 4:50 am
Posts: 181
Bichon Frise, thanks for your suggestion on the Boglehead book. I just finished quickly reading the Boglehead book for the first time and I'm figuring out which sections I'll need to reread and take notes.

I guess I'm at the point where I'm stuck with the "paralysis by analysis." I'm overwhelmed by the many choices and the gotchas that I'm not sure how to put together a roadmap for my personal financial education.

I've also made some really poor financial decisions in the past and just looking to be careful moving forward. I no longer have credit cards or auto loans or student loans. I'm able to save some of my income every month. I've funded an emergency fund (savings account), regular contributions to my 401k (now ~100k) and last year, I started a Roth IRA (now about 10k) and regular investment account.

Books like Boglehead are great, but as I'm reading the book, I find myself getting frustrated with even more questions. For instance, I know that tax strategy and management fees don't matter a lot when I don't have money, but when do they start to matter? I'd I'd like to take steps to become a more savvy investor. Should I get some professional help?


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 Post subject: Re: Roth IRA
PostPosted: Sat Oct 27, 2012 9:11 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 818
Shouldn't be too difficult. Low fees and diversity. Perhaps post your accounts, approx value, age, debt, investing objectives, etc and I am sure you'll get 4 or 5 people to respond and probably 7 or 8 opinions.

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Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Roth IRA
PostPosted: Sun Oct 28, 2012 12:42 am 

Joined: Sun May 29, 2011 4:50 am
Posts: 181
Wow, I typed a bunch of text but must have took too long and timed out.

In short, I am 35 and single. I gross about 70k a year and don't anticipate any substantial increases.

Debt:
I don't have a car loan (drive a 12 year old beater that was purchased used).

I do have a mortgage which was recently refinanced this year (15 year fixed, owe 150k, appraised val 300k).

I also own residential rentals that I have refinanced this year as well (combined 220k owed, appraised val 340k) but I keep the income/expenses in a separate account with sufficient reserves for operational and capital expenditures.

Portfolio:
My big concern is my "investments." On just really bad hunches and poor intuition, I've purchased stocks hours or days before they've become delisted or bankrupt. On the advice of friends, I've also tried "redoption" and "investools" but I've found that they were really too complicated/sophisticated for me and just ended up resulting in total loss.

I've toyed around the idea of getting a financial advisor but I've had plenty of friends that have lost a bunch of money with Ameriprise that I'm just really skeptical.

Until I read the Boglehead book this week, I hadn't really thought of combining my 401k, my IRAs and my taxable accounts into a "portfolio" and so I'm really anxious to get some feedback. I also didn't really understand "fees" or how to compare funds in my 401k so I did the eeny,meeny,miney,mo technique of picking large cap, medium cap and small cap funds along with international and bond. Now that I'm understanding it a bit better I'm looking to simplify my choices.

Do I really need a separate large cap, medium cap and small cap fund? OR can I just get by with one total market or index fund?

I've read that I should consider bond funds tax-inefficient and to place those in tax-advantaged accounts. Is that something I should consider, or is that something that should only be considered by the wealthy?

Also, I do have the option of either Roth 401k or Traditional 401k. Which would apply more to my situation?

My total portfolio (not including my EF) = ~150k

401k (Traditional)
PIMCO Total Return Instl 8.76
Baron Growth Instl 20.21
Fidelity Diversified International K 9.17
Vanguard International Value Inv 9.08
American Funds Fundamental Investors R6 20.62
Royce Low Priced Stock Instl 16.90

Roth IRA
Cash (Roth IRA) 6.98

Schwab (regular investment account)
Schwab Total Stock Market Index 1.66
iShares Silver Trust 6.61

How should I go about restructuring my portfolio?


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 Post subject: Re: Roth IRA
PostPosted: Sun Oct 28, 2012 7:40 am 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1975
Start by reading http://transparentinvesting.com/uploads/wholestory.pdf and then come back and ask more questions if you need to. It's better that you build as strong a foundation as possible so that you know if any advice you get is valid or not.


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 Post subject: Re: Roth IRA
PostPosted: Sun Oct 28, 2012 9:03 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 818
Justus wrote:
Do I really need a separate large cap, medium cap and small cap fund? OR can I just get by with one total market or index fund?



large cap, med cap etc funds are useful for tilting. I hold a very large % of my portfolio in VTSAX, and then I use the other funds to tilt my portfolio towards what I prefer. If it helps, I use Bernstein's "Cowards portfolio," all in admiral funds (except my crappy 401k total market fund). My effective expense ratio is really low, ~0.12% or something.

http://www.bogleheads.org/wiki/Lazy_Portfolios

There is a fellow on the boglehead's forum who back tests some of these as well.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Roth IRA
PostPosted: Sun Oct 28, 2012 9:15 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 818
Justus wrote:

I've read that I should consider bond funds tax-inefficient and to place those in tax-advantaged accounts. Is that something I should consider, or is that something that should only be considered by the wealthy?



Yes, Bond funds are very tax inefficient right now. Mainly because a lot are taxed as ordinary income and not as a qualified dividend.

http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

I hold VTSAX and VEMAX (emerging market) in my taxable account. I wouldn't suggest REIT with you, mainly because you are already exposed to real estate (albeit, locally) through your rentals. But, if you do a REIT, I would definitely hold it in your Roth or 401k (if it is an option).

You should also look at the options in your 401k. Unfortunately, that is where a bulk of your funds are, so you may have to bite the bullet and pay some higher fees.

It's hard to say without knowing the funds and fees of the funds available to you through your 401k. the fees should be rather transparent, and if they aren't, I'd walk down to HR and ask them. It is federal law afterall, that they all be made available to you.

But, assuming your fees are high, a loose suggestion would be:

401k
total market
bond fund

Roth
a fund used to tilt, if any, or more total market if using a 3 fund portfolio

Taxable
International

Many variations can be made off of this. E.g. hold more VTSAX in taxable and an international fund in the roth if doing the 3 fund portfolio.

For know, I would suggest one of the more simpler lazy portfolios until you really understand the point of tilting. And, that should get you all setup really quickly.

_________________
Bichon Frise

"If you only have 1 year to live, move to Penn...as it will seem like an eternity."


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 Post subject: Re: Roth IRA
PostPosted: Sun Oct 28, 2012 10:26 am 

Joined: Mon Oct 08, 2012 10:03 am
Posts: 19
I also would highly recommend A Random Walk Down Wall Street by Burton Malkiel. He is a Princeton professor who demonstrates that index funds beat stock picking over the long run.

Adam
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Adam

http://www.FifteenYearPlan.com - How could this 35 year old save enough to retire working only fifteen years? AND WHY AREN'T YOU doing these things


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 Post subject: Re: Roth IRA
PostPosted: Fri Nov 02, 2012 12:29 am 

Joined: Sun May 29, 2011 4:50 am
Posts: 181
Bichon Frise wrote:

http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

I hold VTSAX and VEMAX (emerging market) in my taxable account.


Bogleheads web site has been down (probably due to Hurricane Sandy), so I've bookmarked to come back to this later.

I see that in general, the strategy is to contribute maximum allowable into tax advantaged accounts (whether roth or traditional, depending on current tax bracket and anticipated future) and then the remainder of investable money into taxable accounts, right?

Are VTSAX and VEMAX relatively tax efficient? Is that why you'd hold it in your taxable account?

What's the best way to compare relative tax efficiency of different funds?


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 Post subject: Re: Roth IRA
PostPosted: Fri Nov 02, 2012 5:53 am 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1975
Justus wrote:
Bichon Frise wrote:

http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

I hold VTSAX and VEMAX (emerging market) in my taxable account.


Bogleheads web site has been down (probably due to Hurricane Sandy), so I've bookmarked to come back to this later.

I see that in general, the strategy is to contribute maximum allowable into tax advantaged accounts (whether roth or traditional, depending on current tax bracket and anticipated future) and then the remainder of investable money into taxable accounts, right?

Are VTSAX and VEMAX relatively tax efficient? Is that why you'd hold it in your taxable account?

What's the best way to compare relative tax efficiency of different funds?

Did you read the link I posted earlier to Transparent Investing? It should help you determine where to put your taxable and non-taxable investments. It should also help you determine your risk tolerance, so you'll know what you should invest in and still be able to sleep at night.


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 Post subject: Re: Roth IRA
PostPosted: Fri Nov 30, 2012 11:50 pm 

Joined: Sun May 29, 2011 4:50 am
Posts: 181
VinTek wrote:
Did you read the link I posted earlier to Transparent Investing? It should help you determine where to put your taxable and non-taxable investments. It should also help you determine your risk tolerance, so you'll know what you should invest in and still be able to sleep at night.


Thanks for that, Vintek. I have read it a few times. I think I'm grasping the concept of "risk tolerance" and also read the pages on where to put the various investments. I don't understand *why* or *how* index funds are relatively tax efficient, though. I realize it has something to do with interest income versus capital gains. I'm just not sure I understand fully. Are dividends the interest income? Is it the fact that with most index funds, most of the returns come in the form of capital gains rather than dividends?


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