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Posted by scottnunn@ec.rr.com on June 23, 2007, 6:48 am
I'm a latecomer to the retirement savings world. 43, recently married,
new kid. I've got 10,000 in a 401-k with vanguard that i need to roll
over into an ira since i'm now working as a freelancer. I'm willing to
go with a target retirement fund but i've got some gound to make up
and am afraid a target fund based on me retiring in, say, 20 years, at
63, would be way too conservative. so . . .
1. would it make sense for me to instead choose a target fund that's
looking out 30-35 years instead of 20, gives me the agressive stance i
need to take to catch up, but then can be modified when i do get to
the point later in life when i have to be conservative.
2. skip the target all together and try to customize something, maybe
some agressive small cap, international and balancve some with a large
index or total market?
3. finally, any thoughts on Vanguard vs. T. Rowe Price vs. Tia-Cref?
I'm OK with vanguard but have heard some good things about the others.
here's current mix
Lord Abbett Small-Cap Value 9.37%
Templeton Instl Emerging Markets 10.60%
Vanguard Capital Opportunity Fund Investor Shares 19.62%
Vanguard International Growth Fund Investor Shares 15.70%
Vanguard LifeStrategy Growth Fund 44.71%
performances
1 Year 3 Year 5 Year 10 Year Since Inception
Capital Opportunity Inv 20.49% 15.34% 15.26% 17.09%
International Growth Fund 27.96% 23.34% 16.10% 8.10% 13.40%
LifeStrategy Growth Fund 21.45% 14.33% 10.99% 8.42 10.80%
If i stay with vanguard, i'll have to lose the lord abbet and the
templetn, since they were attached only via my company.
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Posted by Sandra Loosemore on June 23, 2007, 8:13 am
> I'm a latecomer to the retirement savings world. 43, recently married,
> new kid. I've got 10,000 in a 401-k with vanguard that i need to roll
> over into an ira since i'm now working as a freelancer. I'm willing to
> go with a target retirement fund but i've got some gound to make up
> and am afraid a target fund based on me retiring in, say, 20 years, at
> 63, would be way too conservative. so . . .
Here's something you didn't mention: is it possible for you to do a
Roth conversion on this rollover money, or is your income too high
(AGI over $100K), or do you not have enough savings from other sources
to pay the taxes that would be due? $10K in a Roth IRA is worth more
than $10K in a traditional IRA, because in the latter case you'll still
have to pay taxes on withdrawals. This would really be the best way to
get more bang for your buck in your retirement account. And, of course,
you and your spouse should start maxing out your Roth contributions so
that your retirement account will continue to grow.
> 1. would it make sense for me to instead choose a target fund that's
> looking out 30-35 years instead of 20, gives me the agressive stance i
> need to take to catch up, but then can be modified when i do get to
> the point later in life when i have to be conservative.
Yes, you can do this, but you should also be aware that all target funds
with the same date are not created equal! :-) For instance, both T. Rowe
Price's 2030 fund (TRRCX) and Vanguard's (VTHRX) hold 85% stocks,
while Fidelity's (FFFEX) is a tad more conservative at 80% stocks, and
TIAA-CREF's entry (TCLNX) holds only 70% stocks.
> 2. skip the target all together and try to customize something, maybe
> some agressive small cap, international and balancve some with a large
> index or total market?
If you google for "asset allocation" "efficient frontier", you'll find some
references that indicate a portfolio that holds some bonds has higher returns
as well as lower volatility than a pure-equity portfolio. If you want a
simple slice-and-dice approach that would work with your 10K, you could try
20% TSM or S&P 500 index
20% actively-managed large-cap value fund
20% international
20% small/midcap
20% bonds
Or, for a simple portfolio that will let you sleep at night, open your
account at Oakmark and do:
80% OAKBX
20% OAKIX
> 3. finally, any thoughts on Vanguard vs. T. Rowe Price vs. Tia-Cref?
> I'm OK with vanguard but have heard some good things about the others.
Are you talking about these companies as a brokerage, or as a fund family?
As far as choosing a brokerage is concerned, unless you are going to buy
funds that are only available directly from the distributor (like the Oakmark
funds above), I'd suggest comparison-shopping the various financial
supermarket sites and opening your account there.
As far as fund companies go, Vanguard is known for its low-fee funds, but
many of them have initial investment requirements that may be too high for
someone who's just starting out. You'll have to check the specific funds
you're interested in. T. Rowe Price is generally highly regarded as being
shareholder-friendly. TIAA-CREF, OTOH, has been involved in some dirty
business with fund management; see
http://news.morningstar.com/articlenet/article.aspx?id=157835&_QSBPA=Y
Fidelity is OK, except for their penchant for switching managers every
few months at many of their funds, and for letting successful funds
get way too big before closing them (e.g., FCNTX and FLPSX). A number of
smaller fund companies like Dodge & Cox, Oakmark, Ariel, etc are also
highly regarded as good companies to do business with.
> If i stay with vanguard, i'll have to lose the lord abbet and the
> templetn, since they were attached only via my company.
You may very well find that you'll need to liquidate all your holdings
when you do a rollover, anyway.
-Sandra the cynic
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Posted by Will Trice on June 23, 2007, 9:07 pm
Sandra Loosemore wrote:
> Here's something you didn't mention: is it possible for you to do a
> Roth conversion on this rollover money, or is your income too high
> (AGI over $100K), or do you not have enough savings from other sources
> to pay the taxes that would be due? $10K in a Roth IRA is worth more
> than $10K in a traditional IRA, because in the latter case you'll still
> have to pay taxes on withdrawals. This would really be the best way to
> get more bang for your buck in your retirement account.
I'm ordinarily a fan of Roth conversions, but this last sentence is a
pretty strong statement. The conversion is only favorable if the OP
will have a higher marginal tax rate in retirement than now. We haven't
seen any details about the OP's income, but given his implied paucity of
savings, and the possibility that he is in or near his peak earnings
years, he could very well have a lower marginal tax rate in retirement.
If so, he would be better off saving the money that would have been
used to pay taxes on the conversion. Heck, he might even be better off
using the money to buy a flat screen HDTV.
> If you google for "asset allocation" "efficient frontier", you'll find some
> references that indicate a portfolio that holds some bonds has higher returns
> as well as lower volatility than a pure-equity portfolio.
Unless the reference is looking at short-term performance, I don't think
you'll find this. The first non-paid reference I found by using your
google search led me to this:
http://www.investorsolutions.com/v2content/book/ch13/ch13.cfm
The "Adjusting the Portfolio" section and the "Adjusting the Risk" chart
indicate that adding bonds to a portfolio reduce risk at the cost of
performance. But a main point of asset allocation is that you can
reduce risk *substantially* without *much* performance decrease by
addign some bonds to an equity portfolio.
-Will
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Posted by Elizabeth Richardson on June 23, 2007, 11:42 am
> LifeStrategy Growth Fund 21.45% 14.33% 10.99% 8.42 10.80%
>
> If i stay with vanguard, i'll have to lose the lord abbet and the
> templetn, since they were attached only via my company.
Instead of any Target Fund, why not just go to Vanguard and put it all in
the LifeStrategy Growth Fund? That has the aggression you're looking for and
you're already familiar with its behavior.
Elizabeth Richardson
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