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A place for Get Rich Slowly readers to ask questions
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 Post subject: Question for Business Owners
PostPosted: Fri Nov 02, 2012 12:16 pm 

Joined: Fri Jun 22, 2007 10:40 am
Posts: 35
Location: Longview, TX
My retirement fund is currently with TRS, however I've started a business and I am preparing to roll my current retirement fund into a Vanguard Target Fund.

My questions is, when should I target my retirement? Should I just do the standard 65 even though I really have no idea when, or if I'll "retire" from running my business?

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 Post subject: Re: Question for Business Owners
PostPosted: Fri Nov 02, 2012 12:30 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1750
If you're a "hands-on" type of investor, you should probably do the asset allocation yourself. Do you know what your personal risk tolerance is? Given the uncertainty of your retirement date, I'd say that your risk tolerance is the next-biggest factor. Also, do you intend to continue investing while running your business? Or is the business itself your biggest investment, with the idea that you'll sell it when you retire?


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 Post subject: Re: Question for Business Owners
PostPosted: Fri Nov 02, 2012 12:42 pm 

Joined: Fri Jun 22, 2007 10:40 am
Posts: 35
Location: Longview, TX
I would not consider myself a hands on investor, though I like the idea of having the ability to make choices. I used Vanguard's questionnaire and it suggested 60% stock and 40% bond split. Personally I'm considering more of a 70% stock and 30% bond split because I'm in a position of trying to gain wealth, not manage wealth.

I would like to continue contributing to this fund, though my business is without a doubt my main investment and will likely be sold at some point.

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 Post subject: Re: Question for Business Owners
PostPosted: Fri Nov 02, 2012 1:13 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1750
How old are you now? If you're young, you can take on more risk because you'll have the years to ride out downturns.

And can you take the risk? It's easier to say you can afford to lose large amounts in the near and mid-term, but much harder to actually go through such a loss. The Vanguard questionnaire is designed, via a series of questions, to determine your risk tolerance and goals, then recommend an asset allocation based on that determination. It's fine if you want to deviate from it (my own asset allocation is much riskier than what would normally be recommended) but it's essential that you understand the risk that you're taking on in exchange for higher potential growth.


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 Post subject: Re: Question for Business Owners
PostPosted: Fri Nov 02, 2012 1:22 pm 

Joined: Fri Jun 22, 2007 10:40 am
Posts: 35
Location: Longview, TX
I'm 33 years old. Since the suggested target fund is 80/20 for many years it seems like it could be the right choice.

Additional question, is there any benefit or drawback to waiting until after the election or the new year to contact Vanguard and roll it over?

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 Post subject: Re: Question for Business Owners
PostPosted: Sat Nov 03, 2012 6:51 am 

Joined: Mon Feb 04, 2008 7:35 am
Posts: 1148
Location: Maryland
I don't know what the election will bring, so I would just do it now. You can find pros and cons all day about waiting/not waiting, but does it really matter?

If you do it now, and the stock market tanks, you have time to recover because you're young. If you do it now and the stock market booms, you'll be happy you did it. Pick your poison. :)


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 Post subject: Re: Question for Business Owners
PostPosted: Sat Nov 03, 2012 10:09 am 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
again, all assets between you and your wife should be considered. not just what you are rolling over from your defined benefit plan. It could end up instead of being 80/20 on your AA, you're 60/40, or maybe 95/5.

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 Post subject: Re: Question for Business Owners
PostPosted: Sat Nov 03, 2012 11:00 am 

Joined: Fri Jun 22, 2007 10:40 am
Posts: 35
Location: Longview, TX
Bichon Frise wrote:
again, all assets between you and your wife should be considered. not just what you are rolling over from your defined benefit plan. It could end up instead of being 80/20 on your AA, you're 60/40, or maybe 95/5.


My wife also has a retirement fund with her job. However, she will become a contract employee next month so she can work from our business office. So we also have a decision to make there. Other than our business, our two individual retirement funds are our only investments.

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 Post subject: Re: Question for Business Owners
PostPosted: Sat Nov 03, 2012 12:45 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
vanderbilt79 wrote:
Bichon Frise wrote:
again, all assets between you and your wife should be considered. not just what you are rolling over from your defined benefit plan. It could end up instead of being 80/20 on your AA, you're 60/40, or maybe 95/5.


My wife also has a retirement fund with her job. However, she will become a contract employee next month so she can work from our business office. So we also have a decision to make there. Other than our business, our two individual retirement funds are our only investments.


great. so....are you just sticking with the AA vanguard has prescribed to your age? or are you going with something else?

And when you consider your wife's accounts, what is the AA? Is it close to what you want it to be?

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 Post subject: Re: Question for Business Owners
PostPosted: Sat Nov 03, 2012 2:04 pm 

Joined: Fri May 04, 2007 8:14 pm
Posts: 1750
Bichon has a valid point. Your wife's asset situation should be accounted for in your overall risk assessment.


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 Post subject: Re: Question for Business Owners
PostPosted: Sun Nov 04, 2012 9:33 am 

Joined: Mon May 16, 2011 3:36 pm
Posts: 120
As i agree you should take in your Wife's plans for risk level into your over all plan (ie if she goes a 100% stock, and you go 70%, figuring equal numbers are invested, then your overall stock would be 85%.)

However, what you may also want to do is sorta mirror a target date fund, without paying the premium that comes with it. For example, im under 30, so most funds have me in almost all stock, and usually largely in one index fund. I looked at the index fund it was mostly invested in, and the cost ratio was like .08, or something near that, where the target date fund what around .8 if i recall. Might not sound like much, but over those first 10-12 years of my fund (I started in 2009) this would add up to quite an amount over the years.

Only difference on my part? When I hit 30 I may want to sale some of the index and move it to 10-20 percent into bonds. Takes me all of a few clicks (plus any time i spend deciding allocations) and i saved that much money.

I don't consider this that hands on, hell you could literally just look at the vanguard funds that your target fund has and pick them the exact same way yourself. The only thing that would prevent this is some of their accounts require 3-5k to open, so you may have to start with just one fund (probably a stock one) and after a year or so add on the others. Plus side with this plan also, is you eventually get into the "admiral" indexes, which have even a lower cost ratio.


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 Post subject: Re: Question for Business Owners
PostPosted: Sun Nov 04, 2012 2:29 pm 

Joined: Fri Jun 22, 2007 10:40 am
Posts: 35
Location: Longview, TX
YoungGun wrote:
As i agree you should take in your Wife's plans for risk level into your over all plan (ie if she goes a 100% stock, and you go 70%, figuring equal numbers are invested, then your overall stock would be 85%.)

However, what you may also want to do is sorta mirror a target date fund, without paying the premium that comes with it. For example, im under 30, so most funds have me in almost all stock, and usually largely in one index fund. I looked at the index fund it was mostly invested in, and the cost ratio was like .08, or something near that, where the target date fund what around .8 if i recall. Might not sound like much, but over those first 10-12 years of my fund (I started in 2009) this would add up to quite an amount over the years.

Only difference on my part? When I hit 30 I may want to sale some of the index and move it to 10-20 percent into bonds. Takes me all of a few clicks (plus any time i spend deciding allocations) and i saved that much money.

I don't consider this that hands on, hell you could literally just look at the vanguard funds that your target fund has and pick them the exact same way yourself. The only thing that would prevent this is some of their accounts require 3-5k to open, so you may have to start with just one fund (probably a stock one) and after a year or so add on the others. Plus side with this plan also, is you eventually get into the "admiral" indexes, which have even a lower cost ratio.


I really like the sound of this approach. So instead of calling Vanguard and saying I'd like to roll into a Target Fund, I could have a preselected indexes for a fund?

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 Post subject: Re: Question for Business Owners
PostPosted: Sun Nov 04, 2012 2:45 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
a target date fund is a "fund of funds." It simply just owns other funds. They are quite transparent on which funds they hold and in which percentage. You have never really disclosed how much money we are dealing with here, but in general, the target date funds have a low minimum investment ($1000) while almost all other passive VG funds have a $3k min limit. Passive admiral funds have a $10k min. If able to do all admiral funds, your eff ER will be about .1%, depending on how much int'l you hold. Quite easy to get under 0.1%. If non-admiral, you'll save a little, but for some one just getting started, I'd go straight for the target date fund with VG until you figure some other things out.

VG will roll over into whatever you want. You'll also need a notarized form for the state of TX stating you understand what you are giving up (which I would question if you really do understand it). But, it's your money!

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"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: Question for Business Owners
PostPosted: Sun Nov 04, 2012 2:58 pm 

Joined: Fri Jun 22, 2007 10:40 am
Posts: 35
Location: Longview, TX
Bichon Frise wrote:
a target date fund is a "fund of funds." It simply just owns other funds. They are quite transparent on which funds they hold and in which percentage. You have never really disclosed how much money we are dealing with here, but in general, the target date funds have a low minimum investment ($1000) while almost all other passive VG funds have a $3k min limit. Passive admiral funds have a $10k min. If able to do all admiral funds, your eff ER will be about .1%, depending on how much int'l you hold. Quite easy to get under 0.1%. If non-admiral, you'll save a little, but for some one just getting started, I'd go straight for the target date fund with VG until you figure some other things out.

VG will roll over into whatever you want. You'll also need a notarized form for the state of TX stating you understand what you are giving up (which I would question if you really do understand it). But, it's your money!


I'm working with about $20,000 for myself and $50,000 for my wife. I'll be the first to admit that I do not fully understand the consequences, good or bad, of all the options before me. That's why I'm here discussing it in the forum. That's not to say this forum discussion will lead to my final decision.

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I just want to be something more than the mud in your eyes. I want to be the clay in your hands. - Mineral


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 Post subject: Re: Question for Business Owners
PostPosted: Sun Nov 04, 2012 5:29 pm 

Joined: Fri May 04, 2012 2:23 pm
Posts: 810
vanderbilt79 wrote:
That's not to say this forum discussion will lead to my final decision.


That's b/c your mind was already made up before you ever posted here.

$20k is not a lot. You cannot replicate the target date funds all in admiral funds. best case is:

VTSAX 0.05 ER 55.1% AA = 0.02755%
VGTSX 0.22 ER 23.6% AA = 0.0592%
VBMSX 0.22 ER 21.3% AA = 0.04686%
TOTAL = 0.13361%

VTHRX 0.18 ER

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


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