Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[scho63]

Originally Posted by lewdog

Nothing ****ed at all! You're saving, and that's the important part.

There's no reason you can't consolidate all your 401k's from previous employers to an IRA of your choosing. Easier to manage your money for many if they're together and once rolled over you can dictate how the money is invested, instead of what your employer offered (which usually has limited options). I'd be doing that if you haven't already.

I concur

One account and probably the best performing/lowest fee would be the best.

[Demonpenz]

Originally Posted by lewdog

Hopefully others chime in. I don't want to look like a know-it-all and I myself am still a young investor (31). I do like talking about finances though and reading about it. I have done a lot of financial planning reading in the past few years. Learning about wealth building, retirement planning and investing. There's lots of decent forums where you can find information and for the most part, I think does a pretty good job of educating without someone trying to sell you something like seeing an adviser, plus the fees on top of that.

My parents were good role models in this. Able to retire fully at 57 years old in 2010 having never made a combined household income over $100k. They simply made consistent investments from their mid 20's on. Never sacrificing a years worth of savings for a "major" life event. I hear people use this reasoning all the time. Not saving for retirement to buy a new house, a new car. Taking years off investing when you're young loses you so much money in compounding interest by the time you hit retirement.

I don't solicit any financial advice to people in real life, like friends, unless they directly ask me a question about it. We have some friends who are terrible with money. Close to $100k of debt (that's also their yearly income), outside of a mortgage they barely afford. I just smile and nod when they talk about all their new purchases.

A recent example was our other close friends who asked my opinion on not contributing to retirement for 2 years to save up for redoing their kitchen and floors. Mind you their house is nice, but they didn't like the tile color or the kitchen setup. They are very open with us about finances and told me he contributes 10% of his salary to his 401k. He makes $120k, so he was contributing $12k per year. His wife doesn't work. They contribute to no other investment accounts outside of his 401k. I showed them that if they did not contribute that $24k to retirement over 2 years, that even with a modest 5% gain over 30 years, they'd have $100k less in retirement in 30 years just for missing those 2 years! They were shocked and decided cutting expenses was a better way to save. If more people understood compounding interest, with decades to continue investing, more young people wouldn't skimp on their contributions.

Its all good I just need to get a fire lit under my ass to get those accounts together.

[Buehler445]

Lew is right.

But my perspective is something is better than nothing. It's really easy to get bogged down in details and research. Sometimes paying someone to set it all up is cheap money if you wouldn't otherwise do it.

My grandpa was a farmer. Grew up in the depression. So he did everything himself. Built his house. All his sheds. Airplanes. Rebuilt his tractors. If he couldn't do it himself it largely didn't happen.

But he had 2 mutual funds. One he put $3,000 sometime in the 60s and $3,000 sometime in the 70s. Both had well over 150,000 in them when he died in 08 (right about the time the market puked all over everything). He didn't pay any attention to loads, fees, commission, whatever. He just made a little extra money and had his ground paid off and just stuck it somewhere. I'm sure it wasn't the most efficient and one vastly out yielded the other but the return over time on either one was huge.

Just do something.

[Cornstock]

Originally Posted by lewdog

Nothing ****ed at all! You're saving, and that's the important part.

There's no reason you can't consolidate all your 401k's from previous employers to an IRA of your choosing. Easier to manage your money for many if they're together and once rolled over you can dictate how the money is invested, instead of what your employer offered (which usually has limited options). I'd be doing that if you haven't already.

Agreed, I strongly advise against keeping inactive 401ks from former employers and old IRAs separate. When you consolidate into one IRA you can manage things more easily, and don't need to worry about being charged different fees at 3 different places. You have a full buffet of options when you are in control.

You have the choice to roll these into your current 401k, but this is not advisable because you are limited to whatever funds that company offers, and they usually have higher expense ratios than if you have it elsewhere. A best case scenario would be that they do have a terrific choice of funds that match your objectives, but they are still more expensive annually.

Additionally, when you retire and a required to take Required minimum distributions, having to withdraw from 3 separate places complicates the calculation. If you only have 1 merged account, they will tell you exactly what you need to withdraw, so you don't run the risk of having an insufficient RMD penalty.

[Cornstock]

Originally Posted by Buehler445

Lew is right.

But my perspective is something is better than nothing. It's really easy to get bogged down in details and research. Sometimes paying someone to set it all up is cheap money if you wouldn't otherwise do it.

My grandpa was a farmer. Grew up in the depression. So he did everything himself. Built his house. All his sheds. Airplanes. Rebuilt his tractors. If he couldn't do it himself it largely didn't happen.

But he had 2 mutual funds. One he put $3,000 sometime in the 60s and $3,000 sometime in the 70s. Both had well over 150,000 in them when he died in 08 (right about the time the market puked all over everything). He didn't pay any attention to loads, fees, commission, whatever. He just made a little extra money and had his ground paid off and just stuck it somewhere. I'm sure it wasn't the most efficient and one vastly out yielded the other but the return over time on either one was huge.

Just do something.

Paying someone to do it for you is not always a bad thing, especially for those who don't have the time or interest to do it themselves. Advisors don't guarantee returns, they manage risk, and I think that is a misunderstood role.

Most people think you are paying someone to go out and get you above average returns. That's what a hedge fund is.

Great example of this is a hypothetical where the market as a whole has a 10-15% dip, an advisor who has you in a good asset allocation minimizes your losses during this period to something like 5- 7%. Because you are in a moderately defensive allocation, during good years you may not return exactly what the market returns.

It's a safe bet for the less risky of us.

When you are nearing retirement and have more complex requirements, paying an advisor to minimize your risk is usually worthwhile.

[Aspengc8]

Financial gurus of the CP, I come to you with a question. I have a 401K with the company I have been with for the last 12+ years. What is the differences between 401K and IRA? They also offer a IRA and I can start contributing to that as well as with the 401k, should I be doing that?

[Buehler445]

Originally Posted by Aspengc8

Financial gurus of the CP, I come to you with a question. I have a 401K with the company I have been with for the last 12+ years. What is the differences between 401K and IRA? They also offer a IRA and I can start contributing to that as well as with the 401k, should I be doing that?

If it is a traditional IRA, there isn't a lot of difference structurally. However, 401k contributions are made Pre-tax. This is a giant deal. Essentially, any money you put in a 401k reduces your taxable income. If you look at your paystub, it essentially, gross pay - 401 contributions = net taxable then they calculate withholdings.

Now, you can essentially do the same thing with a IRA, but it is done after the fact on your tax return and it is limited at $5,000. 401k limits are $14,000.

I'd keep it in the 401k unless you are hitting your limits.

[MahiMike]

Originally Posted by Cornstock

Agreed, I strongly advise against keeping inactive 401ks from former employers and old IRAs separate. When you consolidate into one IRA you can manage things more easily, and don't need to worry about being charged different fees at 3 different places. You have a full buffet of options when you are in control.

You have the choice to roll these into your current 401k, but this is not advisable because you are limited to whatever funds that company offers, and they usually have higher expense ratios than if you have it elsewhere. A best case scenario would be that they do have a terrific choice of funds that match your objectives, but they are still more expensive annually.

Additionally, when you retire and a required to take Required minimum distributions, having to withdraw from 3 separate places complicates the calculation. If you only have 1 merged account, they will tell you exactly what you need to withdraw, so you don't run the risk of having an insufficient RMD penalty.

Best thing that ever happened to me financially was getting laid off. I took my 401k, rolled it into a self directed IRA and bought 2 beach condos that I rent out.

[MahiMike]

I will say I'm like lewdog in being obsessed with the financial investments. I try to teach my kids this stuff all the time. They already have their own stock accounts. My son just graduated from high school and is unsure of college, even with good scholarship offers for golf. Instead of being $100k in debt, we're taking his college savings and placing it in the stock market. Can you imagine the compound interest on $25k starting at age 18?

[Amnorix]

Originally Posted by Buehler445

If it is a traditional IRA, there isn't a lot of difference structurally. However, 401k contributions are made Pre-tax. This is a giant deal. Essentially, any money you put in a 401k reduces your taxable income. If you look at your paystub, it essentially, gross pay - 401 contributions = net taxable then they calculate withholdings.

Now, you can essentially do the same thing with a IRA, but it is done after the fact on your tax return and it is limited at $5,000. 401k limits are $14,000.

I'd keep it in the 401k unless you are hitting your limits.

You're a few years out of date I'm afraid. 2017 limit is 18,000.

[Buehler445]

Originally Posted by Amnorix

You're a few years out of date I'm afraid. 2017 limit is 18,000.

Well shit.

[scho63]

Originally Posted by MahiMike

I will say I'm like lewdog in being obsessed with the financial investments. I try to teach my kids this stuff all the time. They already have their own stock accounts. My son just graduated from high school and is unsure of college, even with good scholarship offers for golf. Instead of being $100k in debt, we're taking his college savings and placing it in the stock market. Can you imagine the compound interest on $25k starting at age 18?

Wonderful he has 25K already to invest when you consider how many Americans couldn't come up with $500 in an emergency.

[Cornstock]

Originally Posted by Buehler445

If it is a traditional IRA, there isn't a lot of difference structurally. However, 401k contributions are made Pre-tax. This is a giant deal. Essentially, any money you put in a 401k reduces your taxable income. If you look at your paystub, it essentially, gross pay - 401 contributions = net taxable then they calculate withholdings.

Now, you can essentially do the same thing with a IRA, but it is done after the fact on your tax return and it is limited at $5,000. 401k limits are $14,000.

I'd keep it in the 401k unless you are hitting your limits.

The 401k is designed for you to contribute a set portion of your pay, often with the employer matching a certain percentage. The IRA is for you to contribute above and beyond that, which you could alternatively do through your 401k, just not being matched for the above and beyond contributions.

major differences between the IRA and the 401k will probably be fee structure and fund offerings. Occasionally, an employer will also match a portion of IRA contributions, like a 1 to 2 ratio up to a certain amount.

As a rule of thumb, you should take advantage of however much your employer is willing to match.

Another thing you may want to look into is a Roth 401k. While the portion of the 401k that your employer matches is required to be pretax by law, the portion that you contribute is eligible to be after tax. By paying taxes on your contribution now, rather than on the compounded sum at retirement, you may be able to save 10s of thousands in retirement.

Talk to your tax advisor to see if this is a good strategy for you.

[lewdog]

Part of article from money magazine about investing and compounding interest benefits.

To demonstrate the importance of time and saving early and often, I figured we'd look at how much you'd need to save on an annual basis to become a millionaire by the time you hit 65 years old, the upper-end of the traditional retirement age range.
For our example I've made a few assumptions to keep the calculations as simple as possible.

Using Bankrate's investment calculator I've assumed $0 initial investment, a 7% rate of return, a contribution frequency of once a year, and a compound frequency of once-yearly. We're also assuming that all taxes will be deferred, so keep in mind that tax implications aren't reflected in the eventual $1 million.

With these criteria in mind, here's how much you'd have to save annually to reach $1 million by age 65.
Age 20: $3,500 annually
Age 25: $5,010 annually
Age 30: $7,234 annually
Age 35: $10,587 annually
Age 40: $15,811 annually
Age 45: $24,394 annually
Age 50: $39,795 annually
Age 55: $72,378 annually
Age 60: $173,891 annually

As you can see from the above, your investing leverage disappears quickly if you begin saving and investing for retirement five, or even 10, years after you initially planned. Unfortunately, the "I'll save later" attitude is commonplace in the United States.

http://time.com/money/4417002/save-a..._medium=social

[Cornstock]

Originally Posted by lewdog

Part of article from money magazine about investing and compounding interest benefits.

To demonstrate the importance of time and saving early and often, I figured we'd look at how much you'd need to save on an annual basis to become a millionaire by the time you hit 65 years old, the upper-end of the traditional retirement age range.
For our example I've made a few assumptions to keep the calculations as simple as possible.

Using Bankrate's investment calculator I've assumed $0 initial investment, a 7% rate of return, a contribution frequency of once a year, and a compound frequency of once-yearly. We're also assuming that all taxes will be deferred, so keep in mind that tax implications aren't reflected in the eventual $1 million.

With these criteria in mind, here's how much you'd have to save annually to reach $1 million by age 65.
Age 20: $3,500 annually
Age 25: $5,010 annually
Age 30: $7,234 annually
Age 35: $10,587 annually
Age 40: $15,811 annually
Age 45: $24,394 annually
Age 50: $39,795 annually
Age 55: $72,378 annually
Age 60: $173,891 annually

As you can see from the above, your investing leverage disappears quickly if you begin saving and investing for retirement five, or even 10, years after you initially planned. Unfortunately, the "I'll save later" attitude is commonplace in the United States.

http://time.com/money/4417002/save-a..._medium=social

Unfortunately, far too many in their 20s and 30s don't recognize the need to start saving early. They put themselves in a position that makes it difficult to save by blowing their "disposable" (read "indispensable ") income on going out, tv's, cars they can't afford etc. Even those in their 40s and 50s are saving inadequately. It just seems so far away for them. But at least those who are older will have the luxury of relying on social security to burden the cost of retirement.

News flash for you 20 and 30 somethings. Social security won't be around when you retire. At least not in it's current form.

Millenials are so concerned with the concept of sustainability when it comes to the environment. I wish they would apply the same logic to government spending in the form of entitlement programs. The math just doesn't work. There will be nothing left.

Saving is conscious choice. It is a choice between having toys in the present vs living in poverty in retirement. And in the famous words of Geddy Lee of Rush, "If you choose not to decide, you still have made a choice."