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bdmazur
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I have a retirement fund but no other investments. I was told that I should create a portfolio and especially consider investing in S&P 500 and that it's guaranteed money down the road, so by not investing now I'm losing money.

A) Is this good advice?
B) If I were to follow through with it, what is the best way to do so? Is e-trade a valid and safe site to use?

5/6/2016 6:30:32 PM

The E Man
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yes what are you doing with your money now? Savings accounts give a 1% return, real estate typically 4or 5 % but who knows and the stock market gives you 9%+ yield if you are diverse.

If you have loans with interest greater than 5%, you need to make sure you work on paying them all off before investing. That interest would just nullify most of what you make anyway.

5/6/2016 7:09:06 PM

bdmazur
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Payments on my student loans have been steady and are low-interest enough that I'm not worried. Just under $5000 left on my loans, another $4000 left on my car.

5/6/2016 7:15:19 PM

A Tanzarian
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What is in your retirement fund now? What is the money invested in?

I'd recommend an index fund through Vanguard or Fidelity instead of a brokerage like e-trade.

5/6/2016 7:16:07 PM

bdmazur
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My retirement account is through ING/VOYA. I don't really speak the lingo but it's invested in 20 different mutual funds. I put in $150/month but i'm getting a raise starting July 1 and will likely increase it.

5/7/2016 2:52:05 PM

A Tanzarian
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Quote :
"it's invested in 20 different mutual funds"


That's probably not good.

Is this a 401k? Is there an employer match? What funds are available in the account? Which ones are you invested in?

Investment options in a 401k are controlled by the company and plan administrator, and are frequently limited to funds with high expense ratios (i.e., funds that give the administrator a bigger cut of your money). You control where the money goes with an IRA. The usual 401k advice is to put in just enough money to maximize the employer match, and put the rest of your retirement savings into an IRA. Go back to the 401k only if you max out the IRA.

Of course you still need an overall strategy.

5/7/2016 6:13:22 PM

bdmazur
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It's a 403b (nonprofit) with no employer match. When I signed up there was a huge long list of individual funds I could put my money into and I chose some from each risk category. But I didn't understand in any way shape or form the chart of returns as many of them showed negative numbers, or positive in 5 years and negative in 10, or the other way around.

Here's what my statement looks like:



[Edited on May 7, 2016 at 6:32 PM. Reason : -]

5/7/2016 6:24:10 PM

bdmazur
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I just checked and it looks like overall I've lost 2% of everything I've put in, even though I was up 9.2% a month ago. Looks like it's swinging back up though.

Do I let it be and assume I'll end up on top in the long run or move things around?

5/7/2016 6:49:19 PM

moron
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If Trump is elected, you can expect all your investments to tank. Markets like stable regulatory environments and Trumps' threats to default on the debt, and erect trade barriers would be devastating. Even just the threat causes markets to react.

5/7/2016 6:56:27 PM

A Tanzarian
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There's no reason to have 15% of your retirement savings in a money market. The Voya U.S. Stock Index Portfolio is an S&P 500 index fund.

There's no advantage to you for using the 403b. Your employer doesn't match, the funds you're invested in are expensive, and you aren't close to maxing out an IRA ($150 * 12 = $1800).

My advice to you is:

1. Open an IRA with Vanguard. Stop contributing to your 403b and put that money into your IRA.
2. Select one of Vanguard's target date funds (e.g., the Vanguard Target Retirement 2050 Fund) and make monthly contributions to it. The target date fund will manage risk and diversification for you. This is set-it-and-forget-it. All you have to do is put the money in.
3. Move all of the 403b money into the Voya U.S. Stock Index Portfolio (or another cheap index fund, if you have one available to you).
4. If you max out your IRA (which you should try to do), then contribute to the 403b. Put that money into a cheap index fund.

5/7/2016 7:24:13 PM

theDuke866
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^ that's not bad advice for someone who doesn't really want to get "in" to investing. It's basically the advice I've given my mom. I'd maybe do a couple of things a little differently if you're willing to expend just a little effort, but I wouldn't disagree with that advice.

_____

This isn't really a Soap Box thread. You want it in the Lounge or Old School?

5/8/2016 1:15:16 AM

Patman
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Quote :
"I just checked and it looks like overall I've lost 2% of everything I've put in, even though I was up 9.2% a month ago. Looks like it's swinging back up though."


Remember, you haven't lost or made money until you sell. This is long-term investing, so the ups and downs you are seeing is just noise.

Since they aren't matching, open an IRA with Vanguard. No point in having the 403b until you max out your IRA. You can choose between a tax-deferred IRA (traditional) or after-tax Roth IRA. The Roth IRA is probably the best deal because you can more easily access your contributions and your gains will be tax free in retirement.

[Edited on May 8, 2016 at 9:24 AM. Reason : ?]

5/8/2016 9:20:57 AM

A Tanzarian
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"The Roth IRA is probably the best deal because [...] your gains will be tax free in retirement."


I wouldn't phrase it this way. Traditional and Roth IRAs both allow investments to grow tax free. If the marginal tax rate when money is withdrawn from an IRA is the same as when the money was put in, then both the traditional and Roth IRAs will net the same amount of money. Either way you end up with the same amount of money in your pocket--it's just a matter of whether you pay the taxes now (Roth) or later (traditional).

If the marginal tax rate when withdrawing money is different than when contributing, you could possibly lower your tax burden by choosing either the traditional (if your marginal tax rate in retirement will be lower than present) or Roth (if your retirement tax rate will be higher).

The Roth does have advantages over the traditional IRA: no required minimum distributions, ability to withdraw contributions without penalty, and estate planning benefits. With respect to tax avoidance though, I think there's little difference between the two IRAs for most people (probably by design). To the extent that there is a difference, a traditional IRA likely provides a greater tax benefit.

5/9/2016 1:40:51 AM

bdmazur
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I feel like you're all using as simple of terms as possible to explain this, but I still don't understand it

There should be a required class for high school seniors on how money works, other than one chapter on the stock market in 9th grade civics.

But I do very much appreciate all of you giving input! Any reactions to the original advice I got, about investing in S&P? Or should I max out IRA and focus on the retirement fund?

[Edited on May 9, 2016 at 1:52 AM. Reason : -]

5/9/2016 1:51:32 AM

A Tanzarian
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A) Is this good advice?

For you? No, it is not good advice.

By your own admission, you have no idea what you're doing with your money. You seem unaware that 11% of your 403b is already invested in an S&P 500 fund--the Voya U.S. Stock Index Portfolio.

There's nothing wrong with investing in an S&P 500 index fund. In fact, you probably should have a sizeable piece of your retirement savings in a US broad market index like the S&P 500. But you need to have at least some understanding of what you're doing with the money and how it's going to help you save for retirement. Blindly accepting financial advice--even well meaning and reasonable advice--isn't going to end well. You need to educate yourself.

B) If I were to follow through with it, what is the best way to do so? Is e-trade a valid and safe site to use?

The absolute easiest way is to use what's available in your 403b. The Voya U.S. Stock Index Portfolio is expensive for an index fund, but it's in a tax-advantaged retirement account and you can start today.

There are a million S&P 500 and other broad market index funds out there. You can open an account directly with a fund manager and invest in their funds. This will likely avoid a lot transaction fees, but there may be minimum buy-ins that you'll have to meet (e.g., $10,000 minimum investment).

As suggested earlier, you can open an IRA at Vanguard and put money into one of Vanguard's target date funds (e.g., the Vanguard Target Retirement 2050 Fund). Target date funds include a mix of bonds, international indexes, and US indexes (such as the S&P 500). Other companies also offer target date funds, but Vanguard tends to be the least expensive. As theDuke866 mentioned, target date funds aren't bad, but you can do better if you put in a little time and effort.

If all you want to do is invest in index funds, a brokerage account at e-trade or elsewhere is probably the worst way to do so. You'll get eaten up by loads, commissions, and trading fees if you're not careful.

5/10/2016 1:58:23 PM

mofopaack
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Quote :
"The Roth does have advantages over the traditional IRA: no required minimum distributions, ability to withdraw contributions without penalty, and estate planning benefits. With respect to tax avoidance though, I think there's little difference between the two IRAs for most people (probably by design). To the extent that there is a difference, a traditional IRA likely provides a greater tax benefit."


Not entirely accurate. It depends on A) your current tax rate vs anticipated tax rate at retirement and B) your view on the future of tax rates.

Its impossible to truly know the answer to these things, so many recommend a mix between 401k/IRA and a roth IRA to manage risk.

5/23/2016 3:15:53 PM

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