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Posted by Ron Peterson on July 5, 2008, 3:24 pm
> Oh, and my Vanguard fund is a Roth IRA. The other two are old 401ks.
You might want to consider converting the 401ks to a standard IRA. The
standard IRA can then be converted to a Roth if your income is low
enough or you can wait until 2010.
--
Ron
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Posted by on July 5, 2008, 3:30 pm
> > The Vanguard Target Retirement fund-of-funds spreads
> > their assets across 5 very efficient index funds. The
> Cool, that helps, so based on that and what others have said, I'll
> probably put the money into the Vanguard fund. I might check out T.
> Rowe first, though.
You mentioned elsewhere, I think, an interest in getting
a bit more exposure to one sector or another beyond what
these funds do. That's actually still something quite
reasonable to do (if you really believe in the sector
or asset in question) - by starting with a "core" investment,
perhaps most or almost all of the money - in one of these
funds and then enhancing it with a small slice of a fund
which gets you the asset you were looking for.
> Oh, and my Vanguard fund is a Roth IRA. The other two are old 401ks.
That may complicate things a little bit, but not much.
I'm sure the nice folks at Vanguard will be very happy
to help, but the basic situation is that you cannot mix
Roth IRA money and old 401k money directly. The 401k
money may be rolled over into a _regular_ IRA rather
trivially and with not tax consequences. If you did that,
then you'd have two accounts at Vanguard, both in the
same name, etc, except that one would be Roth and the
other traditional IRA. The other step you can take is
you may be able to convert the 401k money over to the
Roth. If you do so, you'll have to come up with enough
money to pay income taxes on the amount you convert
and you'll want to watch your marginal tax rates (ie. you
probably don't want to do that if it pushes you into a
higher bracket). Or, if your income is too high, you
may not be allowed to do the Roth conversion at all.
Regardless, as I said, most folks would do quite well
to just use one of these funds, at least to start with
until they accumulate substantial assets and/or really
find time and a need to tweak things. Bear in mind
that these very very long-dated target funds are going
to be rather volatile - they are almost all stocks and
will have a lot more volatility than a more conservative
balanced portfolio. I've posted before about how big
a difference having a good sized slice in fixed income
can make - you can reduce overall portfolio volatility
a lot (and the impact of down years like '02 or, um, now)
a lot - without making as big a dent in your long term
results as one may think.
Over a 13 year period, for example, I found that a
portfolio of 50% bond market index and 50% total
stock market index had a blended long-term return
averaging over 9.3% where the 100% stock fund had
a return of 11.13% over that same period of time.
That's a big difference, sure, but surprisingly
small, when one notes that the volatility was cut
approximatly in half. '02 for the all-stock portfolio
lost almost 21% and over '00, '01 and '02, there
was a total loss across those three years of 37%.
During '02, the 50/50 portfolio lost 6.35% and
across '00, '01 and '02, the 50/50 portfolio lost
a total of only 7.2%.
This isn't meant to scare you, but to make sure
that if you go into an all-stock or an almost-all-stock
portfolio, that you are prepared for the possibility
that there will be stretches of time where your losses
can be quite painful.
Most of these "target retirement" funds weren't around
in '00, '01 and '02, so you won't see some of these
scary numbers in their literature. Who knows what we'll
see when we finish with the current unpleasantness - but
it should be rather eye-opening!
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
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Posted by Mike on July 6, 2008, 5:00 am
> Or, if your income is too high, you
> may not be allowed to do the Roth conversion at all.
Well, that's a bit complicated. My income is pretty good (compared to
what it has been), but I'm actually living in Norway right now and
getting paid in kroners. If I understand the income tax system
correctly, even though I'm not earning any dollars, I'll have to pay
U.S. taxes (boo) on whatever portion of my income is above a certain
cutoff. I think that's currently $85k, so if I'm making the equivalent
of $100k, I think I'd have to pay taxes on $15k. I think. If so,
though, I'm not sure whether my tax bracket would be determined based
on the $15k or on the $100k...
> This isn't meant to scare you, but to make sure
> that if you go into an all-stock or an almost-all-stock
> portfolio, that you are prepared for the possibility
> that there will be stretches of time where your losses
> can be quite painful.
If I threw in more fixed assets, would that require me to devise my
own portfolio, or is there a target management kind of fund that might
do that? I'm not necessarily opposed to designing my own, but it would
require time that I just haven't been able to find so far...
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Posted by on July 9, 2008, 5:34 pm
> > Or, if your income is too high, you
> > may not be allowed to do the Roth conversion at all.
> Well, that's a bit complicated. My income is pretty good (compared
> to what it has been), but I'm actually living in Norway right now
> and getting paid in kroners. If I understand the income tax system
> correctly, even though I'm not earning any dollars, I'll have to pay
> U.S. taxes (boo) on whatever portion of my income is above a certain
> cutoff. I think that's currently $85k, so if I'm making the
> equivalent of $100k, I think I'd have to pay taxes on $15k. I
> think. If so, though, I'm not sure whether my tax bracket would be
> determined based on the $15k or on the $100k...
The determining factor is your "modified AGI for Roth IRA
purposes" being under $100,000. See IRS pub 590 for the
details, but basically, it's your AGI, with income from
any Roth conversions excluded, but a few other things
added back in. If you are taking the Foreign Earned Income
Exclusion (up to $87,600 in '08), that comes out before
you calculate your AGI (ie. it's an exclusion, not a
deduction), so that may help you qualify to convert.
I would definitely talk to an accountant, though.
> > This isn't meant to scare you, but to make sure
> > that if you go into an all-stock or an almost-all-stock
> > portfolio, that you are prepared for the possibility
> > that there will be stretches of time where your losses
> > can be quite painful.
>
> If I threw in more fixed assets, would that require me to devise my
> own portfolio, or is there a target management kind of fund that
> might do that? I'm not necessarily opposed to designing my own, but
> it would require time that I just haven't been able to find so
> far...
Basically, the shorter "maturity" target date funds
have higher levels of fixed income. Example - the
Vanguard Target funds:
2010: 48% stocks, 44% bonds
2020: 62% stocks, 28% bonds
2030: 75% stocks, 14% bonds
2040: 79% stocks, 10% bonds
(they all have 10-20% in cash and/or other categories)
You're (iirc) 38 years old. You've got at least, what,
a 20 year time horizon? If you can stomach the volatility
(and that's a big *if*. You have to have a stomach of
steel sometimes!), your long time horizon raises the
chances that you can safely ride out the higher volatility
of a more-stock portfolio and thereby harvest the higher
returns that go with it. Only you can decide what's really
your comfort zone. In most cases, with such a long time
horizon, I'd expect most folks to go with at least 60%
stocks. The problem with the 2020 target fund is that
you'll need to keep watching it - over time it gets more
conservative, even if you don't really need it to. As I
said, these are a great starting point - and in any case,
you can certainly build a core holding with one of the
and then buy another fund which balances it back to where
you really mean to be later. Or if it's in a retirement
account, you have no tax consequences from shifting to
a different one later if the balance isn't where you
want it to be.
There are also "balanced" funds which are similar to
the target retirement funds in terms of allocating
investments to several asset classes, but they
generally stay in relatively fixed asset class
distributions rather than becoming more conservative
over time like the target funds. Look, for example,
at Vanguard's "LifeStrategy" funds. LS Moderate
Growth is 70% stock, 30% bonds, built out of three
of their index funds and a slice of their "asset
allocation fund" which allows it to shift allocations
around a bit, but not all over the place. In the
00-02 stretch, VSMGX lost a total of 15%, yet over
13 years - including that stretch, it averaged about
10%. (down a touch more than 8% YTD. Blech.)
Anyway, the point is that these balanced and/or target
funds can be great. Just make sure that you agree
with their asset allocations and risk. The date in
the title isn't nearly as meaningful as what's going
on under the hood. Assess your personal risk tolerance
as honestly as you can and then find a fund which
matches that. You'll sleep a lot better doing that,
I think, than you will just accepting a year in the
title.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
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Posted by Default User on July 6, 2008, 12:23 am
BreadWithSpam@fractious.net wrote:
>
> > Mike wrote:
> >
> > > The Vanguard fund has a lower expense ratio, and I like the tools
> > > on its website, but it also has a $25 annual fee.
> >
> > Are you sure? Vanguard charges a $20 fee for any fund with less than
> > $10,000 in it, but that's nothing specific to TR 2045. Do you have
> > less than that amount in aggregate? Also, Vanguard waives that fee
> > if you elect for electronic statements.
>
> There's a $25/fund fee if it's in a SIMPLE IRA, but it
> doesn't sound like the OP is in one of those. No such
> fee on nonretirement, IRA, Roth IRA, SEP-IRA of ESAs.
Right, he mentioned that he'd misread that part.
> And, as you said, that fee's waived if you get electronic
> delivery. The OP said he had about $50k across his
> accounts - if that all went into the target 2045 fund,
> he'd have no fees and still get all the paper statements.
With that amount, I'd suggest Wells Fargo. He'd qualify for a no-fee
linked PMA account, and get 100 free transactions per account. So any
Vanguard fund (I think) and of course all the ETFs you could want.
Brian
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to keep the conversations on-topic for financial planning. Other posting
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