New To Investing Thread

[DQ12]

IRA QUESTIONS

1.  i have a roth at NWM, and i want to move it over to TDA. I want to do this because (1) i have a TDA brokerage account and i'd like to consolidate at one place; and (2) NWM charges an annual $50 roth maintenance fee and i don't think TDA does (?).  is this conversion a PITA?

2.  how do income limits work, and if i'm approaching the household magi income limit, should i just transition the entire thing to traditional or is there a hybrid scheme (i.e. contribute phaseout max to roth, and some additional amount to traditional) that makes sense?  if a hybrid scheme works, is managing that a PITA?  i'd like to just set it and forget it as much as possible.

[steve dave]

considerable income or net worth is lmao

I don't know what that means

he means that observing that wealthy people have chosen that investment vehicle is not good evidence that it is a competitive investment vehicle.

Like I said, I won't argue either side. I could see it being good tool for some of my needs, but would never consider it as a primary wealth building investment either.

Also, mimicking people richer and smarter than I has served me well so far.

I feel like this could be settled with a spreadsheet

It could. But it would require how it's being used.

Example, and keep in mind I absolutely might be rough ridin' up some of what I remember. But from what I was told, you can have whole life and get loans from the whole life company using your policy as the collateral. And the interest you pay, or at least a portion (?), goes back to you. So if you have $100k in your whole life policy, and you take out $50k, you pay yourself the interest on that $50k loan. All the while, your complete $100k is accruing interest at its full value. So if it's 3%, you still make $3k that year in normal interest plus whatever interest you're paying yourself for the $50k loan.

If that is true, then you're essentially using it like a "high" interest savings account. People like me often need liquidity for the short-ish term (say 6 months to 2 years), but hate leaving money in a checking or shitty savings account. So I do think there are some quality uses for whole life, assuming what I was told is somewhat accurate. To use whole life as your retirement plan, probably not a great idea.

Just don’t tell people you got swindled onto whole life and nobody will mock you

['taterblast]

2.  how do income limits work, and if i'm approaching the household magi income limit, should i just transition the entire thing to traditional or is there a hybrid scheme (i.e. contribute phaseout max to roth, and some additional amount to traditional) that makes sense?  if a hybrid scheme works, is managing that a PITA?  i'd like to just set it and forget it as much as possible.

no, keep what you have in roth. the MAGI limit only applies to Roth contributions during that tax year where your income exceeded the limit. so if you think you're going to exceed MAGI limit in a given year start doing a backdoor Roth. (contribute to Traditional then transfer to Roth. very stupid but easy once you do it.)

[steve dave]

IRA QUESTIONS

1.  i have a roth at NWM, and i want to move it over to TDA. I want to do this because (1) i have a TDA brokerage account and i'd like to consolidate at one place; and (2) NWM charges an annual $50 roth maintenance fee and i don't think TDA does (?).  is this conversion a PITA?

2.  how do income limits work, and if i'm approaching the household magi income limit, should i just transition the entire thing to traditional or is there a hybrid scheme (i.e. contribute phaseout max to roth, and some additional amount to traditional) that makes sense?  if a hybrid scheme works, is managing that a PITA?  i'd like to just set it and forget it as much as possible.

1. No input here

2. Contribute the first $6k after tax money (you and spouse both get $6k) and immediately convert it to a Roth. Back door that they will probably take away soon so get it while it’s hot.

[Kat Kid]

In my experience the way to transfer a Roth is to contact the destination and then they will help you transfer the assets. They are motivated to do this so it is relatively painless. I did this on a three way phone call during a commute home in like 30 minutes.  I had to fill out some forms and do some other stuff first, but the actual asset transfer phone call was redic easy.

[catastrophe]

The one and only time I moved an IRA they basically had to completely liquidate the account, cut me a paper check, and send it to the place I was rolling over to. It was weird/annoying but not complicated.

My only advice is to make sure you have everything papering the transaction in case they report it weirdly for taxes. Whenever you backdoor rollover, for example, Vanguard reports it as a distribution but checks some kinda box like “no idea if this is taxable,” so it’s on you to insist (and prove if necessary) around tax time that all the funds actually went into an IRA within whatever the required time period is (something like 90 days after withdrawing from an existing IRA I think).

[catastrophe]

I’ve got a question that is maybe dumb or maybe genius. Barring some major change in rates, does it ever make sense to buy something other than stocks/equities?

You hear a lot about how your portfolio should shift to more bonds when you near retirement to protect you from volatility, but presumably you’re putting almost nothing in DURING retirement, so when should you start buying more bonds? And more importantly, why?

If I bought VOO 20 years ago, don’t those gains alone hedge against any short term volatility for the VOO I buy today? And won’t the VOO I buy today definitely out perform any bonds when I finally have to sell THOSE shares 20 years from now?

[Kat Kid]

I’ve got a question that is maybe dumb or maybe genius. Barring some major change in rates, does it ever make sense to buy something other than stocks/equities?

You hear a lot about how your portfolio should shift to more bonds when you near retirement to protect you from volatility, but presumably you’re putting almost nothing in DURING retirement, so when should you start buying more bonds? And more importantly, why?

If I bought VOO 20 years ago, don’t those gains alone hedge against any short term volatility for the VOO I buy today? And won’t the VOO I buy today definitely out perform any bonds when I finally have to sell THOSE shares 20 years from now?

As you approach retirement and start to draw down you may want to prevent a big loss of capital as you are already drawing down the balance. The problem is bonds look like crap for the foreseeable future and have underperformed terribly and also not held up in recent crashes very well at all.

I don’t have all the answers but I think for most people even 70/30 is way too conservative for the cast majority of their investing life. I would be much less comfortable knowing what allocations should be in years approaching retirement or retirement but would be happy to hear from other knowledgeable sources here.

[catastrophe]

Here is what is tripping me up: say I'm within 10 years of retirement. If I switch from 100/0 to 80/20 now, then I'm missing out on 10 years' worth of S&P 500 gains on 20% of my portfolio leading up to retirement. Do the back-end benefits (less likelihood of having to withdraw money during a crash at substantially below what the gains should be) really outweigh the gains given up during those years? Would it make more sense to try and build up 1-2 years worth of expenses in an 80/20 portfolio (regardless of how long that takes) and just leave that as your recession safety net while plunging everything else into S&P 500?

[WillieWatanabe]

Finally got ms ww's retirement plan set up through her work. By default it wants to put the funds in their "managed target income" service. Looks like it's spread across 5 or 6 funds, including a couple bond ones.
I think i want to remove it from that service and just throw it all in the Schwab S&P 500 index Fund and call it a day. Good idea?

[Kat Kid]

Finally got ms ww's retirement plan set up through her work. By default it wants to put the funds in their "managed target income" service. Looks like it's spread across 5 or 6 funds, including a couple bond ones.
I think i want to remove it from that service and just throw it all in the Schwab S&P 500 index Fund and call it a day. Good idea?

yes if you are not 60+ yrs old

[Kat Kid]

Here is what is tripping me up: say I'm within 10 years of retirement. If I switch from 100/0 to 80/20 now, then I'm missing out on 10 years' worth of S&P 500 gains on 20% of my portfolio leading up to retirement. Do the back-end benefits (less likelihood of having to withdraw money during a crash at substantially below what the gains should be) really outweigh the gains given up during those years? Would it make more sense to try and build up 1-2 years worth of expenses in an 80/20 portfolio (regardless of how long that takes) and just leave that as your recession safety net while plunging everything else into S&P 500?

The biggest reason that doesn't work for people is human behavior because people panic and sell the bottom and then don't buy back in. If you have the stomach for the risks, the S&P has been much better than holding any allocation to bonds.

[catastrophe]

Here is what is tripping me up: say I'm within 10 years of retirement. If I switch from 100/0 to 80/20 now, then I'm missing out on 10 years' worth of S&P 500 gains on 20% of my portfolio leading up to retirement. Do the back-end benefits (less likelihood of having to withdraw money during a crash at substantially below what the gains should be) really outweigh the gains given up during those years? Would it make more sense to try and build up 1-2 years worth of expenses in an 80/20 portfolio (regardless of how long that takes) and just leave that as your recession safety net while plunging everything else into S&P 500?

The biggest reason that doesn't work for people is human behavior because people panic and sell the bottom and then don't buy back in. If you have the stomach for the risks, the S&P has been much better than holding any allocation to bonds.

Thanks. I will most likely avoid getting much into bonds at all, save maybe selling some stocks at good points to replenish a bond-heavy safety net if needed. I’m planning to “retire” with plenty of good working years left in me so I hope to be especially well positioned to weather a troubled economy by just picking up some work if needed.

[ben ji]

Here is what is tripping me up: say I'm within 10 years of retirement. If I switch from 100/0 to 80/20 now, then I'm missing out on 10 years' worth of S&P 500 gains on 20% of my portfolio leading up to retirement. Do the back-end benefits (less likelihood of having to withdraw money during a crash at substantially below what the gains should be) really outweigh the gains given up during those years? Would it make more sense to try and build up 1-2 years worth of expenses in an 80/20 portfolio (regardless of how long that takes) and just leave that as your recession safety net while plunging everything else into S&P 500?

The biggest reason that doesn't work for people is human behavior because people panic and sell the bottom and then don't buy back in. If you have the stomach for the risks, the S&P has been much better than holding any allocation to bonds.

Thanks. I will most likely avoid getting much into bonds at all, save maybe selling some stocks at good points to replenish a bond-heavy safety net if needed. I’m planning to “retire” with plenty of good working years left in me so I hope to be especially well positioned to weather a troubled economy by just picking up some work if needed.

KK makes a great point. I am nowhere near my retirement age but my current plan is to keep around 5 years of living expenses in a bond fund that I withdraw for spending money throughout the year. Once a year you move some money from stocks to bonds unless there is a huge market crash and then all you have to do is pray the market recovers sometime in the next 5 years while you keep spending your bond funds.

Who knows if that will be a viable strategy in 20 years.

[steve dave]

Alpha from picking investments is hard AF. I’m certainly not good enough to do it anywhere near consistently. But damned if I don’t love trying. And I’ll continue to try. But getting an edge by putting a good plan together and working the living crap out of every plan and tax loophole there is is guaranteed returns.

[sys]

my current plan is to keep around 5 years of living expenses in a bond fund that I withdraw for spending money throughout the year.

i dunno if it makes sense or not, but this is basically my plan; 4-5 years worth of living expenses in bonds (i'll probably go individual bonds and not a fund) to be used whenever the market is significantly down.  otherwise living expenses will come from stocks.

[Phil Titola]

the "how much do I want to spend in retirement" is where I always get tripped up.  it's going to be mostly discretionary spending and if I retire before I'm old I'm going to get bored and want to travel every other week, or feel better about retiring earlier and just not spend as much but be bored stiff.

[catastrophe]

the "how much do I want to spend in retirement" is where I always get tripped up.  it's going to be mostly discretionary spending and if I retire before I'm old I'm going to get bored and want to travel every other week, or feel better about retiring earlier and just not spend as much but be bored stiff.

It’s not too hard for us to get an approximation of our living expenses year to year. I’m using that (inflation adjusted) plus a modest premium (~25%) for my yearly retirement income goal. No science to it at all and obviously my expense needs will be totally different, but my thought process is if I can make it work now without budgeting, then I’ll be able to comfortably live off of it later when I can save in plenty of places I’m wasting money on now.

[catastrophe]

my current plan is to keep around 5 years of living expenses in a bond fund that I withdraw for spending money throughout the year.

i dunno if it makes sense or not, but this is basically my plan; 4-5 years worth of living expenses in bonds (i'll probably go individual bonds and not a fund) to be used whenever the market is significantly down.  otherwise living expenses will come from stocks.

Post kickass bond recommendations ITT.

[Phil Titola]

the "how much do I want to spend in retirement" is where I always get tripped up.  it's going to be mostly discretionary spending and if I retire before I'm old I'm going to get bored and want to travel every other week, or feel better about retiring earlier and just not spend as much but be bored stiff.

It’s not too hard for us to get an approximation of our living expenses year to year. I’m using that (inflation adjusted) plus a modest premium (~25%) for my yearly retirement income goal. No science to it at all and obviously my expense needs will be totally different, but my thought process is if I can make it work now without budgeting, then I’ll be able to comfortably live off of it later when I can save in plenty of places I’m wasting money on now.

Yeah good approach. I have all my data in quicken so easy to see I just don't know how much more I'm going to want to frivolously spend once I don't work.  While I do whatever I want now I have the job constraint.

[sys]

Post kickass bond recommendations ITT.

i'll probably just put most of it in 2 year treasuries.  maybe a bit in corporates or munis to goose the yield a little.

[catastrophe]

Post kickass bond recommendations ITT.

i'll probably just put most of it in 2 year treasuries.  maybe a bit in corporates or munis to goose the yield a little.

When do you start buying? Are you thinking you would sell securities to buy the bonds at retirement?

I’m still caught up in the opportunity cost of not investing in stocks leading up to retirement. Maybe for early retirees the answer is withdrawing all Roth contributions on retirement and using those to buy treasury bonds?

[sys]

yeah, i don't hold any bonds currently.  plan would be to start purchasing when i retire.

[catastrophe]

Purchase from what?

[sys]

taxable accounts.