Investing questions

[koonja]

Like the homosexual man working the grill at my first job told me one evening, "Just sit on it".

To which you replied "if it fits I sits".

 

[MJ12666]

So my 401K investments have been in the tank for the last few months. I know this is normal and you should just let it ride out, but should I be considering changing any of this? My YTD return is .9%.

Here are my elections:
ABDN EMERG MKTS INST 19%
VANG INST INDEX PLUS 27%
VANG MD CP IDX IS PL 27%
VANG SM CP IDX IS PL 27%
Total: 100%

I suggest that you should sit down with a financial advisor; and I am not trying to be sarcastic. Find a good one and it is worth the money.

 

[Veritate Duce Progredi]

I suggest that you should sit down with a financial advisor; and I am not trying to be sarcastic. Find a good one and it is worth the money.

I don't necessarily agree (apologies to all you financial advisors) but I will say that you should find someone that works on a flat fee if you go that route. Can't remember the exact terminology but I'm sure you can find it with a little searching.

 

[wizards8507]

Koon, once you have an allocation you like, stop touching it. Put a recurring quarterly appointment on your Outlook calendar to re-balance back to your original allocations. ONLY re-balance on those quarterly appointments and don't try to time the market.

FTR, my breakdown:

20% VANG SM CP IDX IS PL
20% VANG MD CP IDX IS PL
20% VANG INST TOTL SK TR
20% VANG INST 500 TRUST
10% BR EMERG MKT IDX F
10% FID INTL INDEX INS

 

[texbender]

Koon, once you have an allocation you like, stop touching it. Put a recurring quarterly appointment on your Outlook calendar to re-balance back to your original allocations. ONLY re-balance on those quarterly appointments and don't try to time the market.

FTR, my breakdown:

20% VANG SM CP IDX IS PL
20% VANG MD CP IDX IS PL
20% VANG INST TOTL SK TR
20% VANG INST 500 TRUST
10% BR EMERG MKT IDX F
10% FID INTL INDEX INS

I approve this message

 

[koonja]

Koon, once you have an allocation you like, stop touching it. Put a recurring quarterly appointment on your Outlook calendar to re-balance back to your original allocations. ONLY re-balance on those quarterly appointments and don't try to time the market.

FTR, my breakdown:

20% VANG SM CP IDX IS PL
20% VANG MD CP IDX IS PL
20% VANG INST TOTL SK TR
20% VANG INST 500 TRUST
10% BR EMERG MKT IDX F
10% FID INTL INDEX INS

I approve this message

What if I want to MAGA (kidding), and go with just the 3 VANG's?

33% SM, 34% INST, 33% Mid. Would I be crazy? I just don't like the overseas stuff. I feel like it's a shot and a prayer.

 

[Veritate Duce Progredi]

What if I want to MAGA (kidding), and go with just the 3 VANG's?

33% SM, 34% INST, 33% Mid. Would I be crazy? I just don't like the overseas stuff. I feel like it's a shot and a prayer.

What happens when overseas funds see a 20% jump and US is stagnant? Will you feel like you're missing out on the 'new prospecting'?

As Wiz said, make a decision and run with it and rebalance at a predesignated time. I don't rebalance often, like every year or two. I'm better off when I don't actively engage with my portfolio because I'm tempted to get cute.

 

[wizards8507]

What if I want to MAGA (kidding), and go with just the 3 VANG's?

33% SM, 34% INST, 33% Mid. Would I be crazy? I just don't like the overseas stuff. I feel like it's a shot and a prayer.

It wouldn't be crazy, but it's less diversified for sure.

 

[Ndaccountant]

I don't necessarily agree (apologies to all you financial advisors) but I will say that you should find someone that works on a flat fee if you go that route. Can't remember the exact terminology but I'm sure you can find it with a little searching.

33% SM, 34% INST, 33% Mid. Would I be crazy? I just don't like the overseas stuff. I feel like it's a shot and a prayer.

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case dismissed.

 

[RDU Irish]

Finding reasons to increase your 401k contribution is way more important than picking the perfect allocation for 95% of America. There was nothing dramatically wrong with your initial allocation choice for a young, aggressive investor (which should be near synonyms unless someone is socking away 25% of their pay from age 20 on). Rebalance to your original targets when you feel like it. But second guessing your choices every week is a recipe for disaster. Changing allocations should not be a quarterly occurrence.

Would I go more international, less mid/small cap maybe a smidge of bonds? Sure - but that doesn't mean your position won't do well (or better) over 20 years if you stick to it. They key is whether or not you will stick to it and my impression is - probably not. I doubt hiring an adviser is a positive ROI decision at this point of the game - are they really going to keep you disciplined or just give you another person to not listen to?

 

[Ndaccountant]

Finding reasons to increase your 401k contribution is way more important than picking the perfect allocation for 95% of America. There was nothing dramatically wrong with your initial allocation choice for a young, aggressive investor (which should be near synonyms unless someone is socking away 25% of their pay from age 20 on). Rebalance to your original targets when you feel like it. But second guessing your choices every week is a recipe for disaster. Changing allocations should not be a quarterly occurrence.

Would I go more international, less mid/small cap maybe a smidge of bonds? Sure - but that doesn't mean your position won't do well (or better) over 20 years if you stick to it. They key is whether or not you will stick to it and my impression is - probably not. I doubt hiring an adviser is a positive ROI decision at this point of the game - are they really going to keep you disciplined or just give you another person to not listen to?

 

[wizards8507]

Finding reasons to increase your 401k contribution is way more important than picking the perfect allocation for 95% of America. There was nothing dramatically wrong with your initial allocation choice for a young, aggressive investor (which should be near synonyms unless someone is socking away 25% of their pay from age 20 on). Rebalance to your original targets when you feel like it. But second guessing your choices every week is a recipe for disaster. Changing allocations should not be a quarterly occurrence.

Would I go more international, less mid/small cap maybe a smidge of bonds? Sure - but that doesn't mean your position won't do well (or better) over 20 years if you stick to it. They key is whether or not you will stick to it and my impression is - probably not. I doubt hiring an adviser is a positive ROI decision at this point of the game - are they really going to keep you disciplined or just give you another person to not listen to?

Bonds are for cucks.

 

[TheRealLynch51]

I don't necessarily agree (apologies to all you financial advisors) but I will say that you should find someone that works on a flat fee if you go that route. Can't remember the exact terminology but I'm sure you can find it with a little searching.

Fee Only Fiduciary is what you're looking for

 

[RDU Irish]

Bonds are for cucks.

Rebalancing and diversification work better with less correlated asshats.

 

[RDU Irish]

Fee Only Fiduciary is what you're looking for

Labels are for marketing. You could talk to 100 "Fee Only Fiduciaries" and find 100 different business models and qualification levels just like every other stripe of financial advisor. If all you want is a 401k allocation recommendation - do the online survey they undoubtedly have on their site and stick with the recommendation. Your success will be more closely tied to how much you contribute than to whether you were 80% or 100% equities. Job #1, get in the right ballpark. Job #2, don't leave the ballpark.

 

[Veritate Duce Progredi]

Education investment question:

I have a friend looking to contribute to a 529 but he's considering pulling from it each year to fund the kids private education. (obviously this is bad). I explained he could be pulling during a recession and lose money, etc. etc.

To fund immediate education needs, I suggested he roll 1 year CDs for 4 years and roll 5 year CDs from there onward.

I also suggested he continue to contribute to the 529, however little, to allow it the 18-24 years needed to compound and use it as the vehicle was intended.

He said someone mentioned it's better to put all that money into a Roth so you can use it for education expenses if needed but it won't be limited to education.

But that doesn't account for the fact that you can't touch it until your 60 without incurring fees. So we did the Delta and his first child will be graduating college when he's 56 (hypothetically).

So any student loans carried will accrue interest for 3.5-4 years which could be a sizable increase. Also, it's compounding potential losses in the market if a recession is going when he hits 60

He's worried about the stipulation that it must be used for schooling, but who knows what bridges will be built down the road. These vehicles aren't created to leave people stranded, from my minimal historical understanding. Any time a new investment plan/tax-advantaged savings plans is introduced, there is some risk about long term options for holders but is that a reason to worry?

Am I overlooking anything?

 

[Ndaccountant]

Education investment question:

I have a friend looking to contribute to a 529 but he's considering pulling from it each year to fund the kids private education. (obviously this is bad). I explained he could be pulling during a recession and lose money, etc. etc.

To fund immediate education needs, I suggested he roll 1 year CDs for 4 years and roll 5 year CDs from there onward.

I also suggested he continue to contribute to the 529, however little, to allow it the 18-24 years needed to compound and use it as the vehicle was intended.

He said someone mentioned it's better to put all that money into a Roth so you can use it for education expenses if needed but it won't be limited to education.

But that doesn't account for the fact that you can't touch it until your 60 without incurring fees. So we did the Delta and his first child will be graduating college when he's 56 (hypothetically).

So any student loans carried will accrue interest for 3.5-4 years which could be a sizable increase. Also, it's compounding potential losses in the market if a recession is going when he hits 60

He's worried about the stipulation that it must be used for schooling, but who knows what bridges will be built down the road. These vehicles aren't created to leave people stranded, from my minimal historical understanding. Any time a new investment plan/tax-advantaged savings plans is introduced, there is some risk about long term options for holders but is that a reason to worry?

Am I overlooking anything?

You can withdraw Roth IRA contributions at any point, penalty free.

For education expenses, Roth IRA's can be used as well. But, the earnings are considered taxable income when withdrawn.

529's withdrawn for non-qualified education expenses have a 10% penalty on the earnings plus income taxes. 529's also have less flexible investment options. However, they can be transferred to relatives penalty free and can also provide some state income tax relief.

So depending on the individual situation, there can be some merit either way. I personally wouldn't use the Roth that way, but that's just my preference.

 

[RDU Irish]

You can access Roths contributions penalty free- the appreciation may have a 10% penalty prior to 59.5. If you are not maxing out your Roth, you should not be considering a 529 (IMO).

I have a lot of problems with 529s, not least of which is hamstringing your FAFSA application. Colleges really appreciate people earmarking money for them like that. Tax advantages are largely overstated and market dependent too.

 

[Ndaccountant]

You can access Roths contributions penalty free- the appreciation may have a 10% penalty prior to 59.5. If you are not maxing out your Roth, you should not be considering a 529 (IMO).

I have a lot of problems with 529s, not least of which is hamstringing your FAFSA application. Colleges really appreciate people earmarking money for them like that. Tax advantages are largely overstated and market dependent too.

Overrated IMO.

EFC's impact of 529 is maxed out at 5.64% of the balance. But, if you use Roth IRA to fund college, the FASFA application the following year will pick that up as income. Even if the Roth IRA isn't considered taxable income, it is still picked up as untaxed income in the application. IMO, this hurts more b/c if you were needing to take from a Roth to fund college, chances are you child would qualify for need based aid. Double whammy if you ask me.

 

[wizards8507]

You can access Roths contributions penalty free- the appreciation may have a 10% penalty prior to 59.5. If you are not maxing out your Roth, you should not be considering a 529 (IMO).

I have a lot of problems with 529s, not least of which is hamstringing your FAFSA application. Colleges really appreciate people earmarking money for them like that. Tax advantages are largely overstated and market dependent too.

529s are treated as parent assets, not student assets.

 

[RDU Irish]

Overrated IMO.

EFC's impact of 529 is maxed out at 5.64% of the balance. But, if you use Roth IRA to fund college, the FASFA application the following year will pick that up as income. Even if the Roth IRA isn't considered taxable income, it is still picked up as untaxed income in the application. IMO, this hurts more b/c if you were needing to take from a Roth to fund college, chances are you child would qualify for need based aid. Double whammy if you ask me.

Good points - I had not thought about the Roth income showing as non-taxed income since (in my mind) it is a return of principal. At least with the change in tax year to attach to the FAFSA parents should get two years in before that catches up.

My understanding - first year is most important for grant-in-aid - most schools look at these as 4 year blocks where you really need to see some significant changes in taxes to change this in following years (up or down).

My general opinion is not to mortgage your retirement for your kid's education. They have their whole working career to pay it off and parents are running out of runway to build that nest egg.

 

[RDU Irish]

529s are treated as parent assets, not student assets.

There is a difference between the federal treatment of the FAFSA and what the colleges drive. For Federal money you are correct, colleges can do whatever they want. Most of what people are concerned with is the grant money which is driven by college aid departments by and large. I would have to see some pretty convincing statistics to convince me that colleges give the same money to a family with a $50,000 529 plan as they do an identical family with $50,000 in a 401k or bank CD for that matter.

Also worth noting - big differences b/w state colleges and private colleges on this front. Public will tend to be more formulaic.

All IMO - your mileage may vary. At the end of the day, always better to have some money available so you don't have to rely on the generosity of others.

 

[wizards8507]

There is a difference between the federal treatment of the FAFSA and what the colleges drive. For Federal money you are correct, colleges can do whatever they want. Most of what people are concerned with is the grant money which is driven by college aid departments by and large. I would have to see some pretty convincing statistics to convince me that colleges give the same money to a family with a $50,000 529 plan as they do an identical family with $50,000 in a 401k or bank CD for that matter.

Also worth noting - big differences b/w state colleges and private colleges on this front. Public will tend to be more formulaic.

All IMO - your mileage may vary. At the end of the day, always better to have some money available so you don't have to rely on the generosity of others.

Yeah I'm shocked at how wildly the formulas vary, even between private schools that ostensibly should offer similar aid packages. I got into Boston College and Villanova the day before I got into Notre Dame, and their piddly packages had me devastated that ND's would be just as bad and I wouldn't be able to attend. Thankfully, ND came through big time.

My sisters (Loyola Maryland and Boston College) weren't as lucky. My mom's employer pays $10,000 per year towards her kids' tuition. Notre Dame treated that as normal $10,000 of income and applied the standard percentage in terms of how much should go towards tuition. BC and Loyola reduced their grant offers by 100% of the $10K.

 

[RDU Irish]

Yeah I'm shocked at how wildly the formulas vary, even between private schools that ostensibly should offer similar aid packages. I got into Boston College and Villanova the day before I got into Notre Dame, and their piddly packages had me devastated that ND's would be just as bad and I wouldn't be able to attend. Thankfully, ND came through big time.

My sisters (Loyola Maryland and Boston College) weren't as lucky. My mom's employer pays $10,000 per year towards her kids' tuition. Notre Dame treated that as normal $10,000 of income and applied the standard percentage in terms of how much should go towards tuition. BC and Loyola reduced their grant offers by 100% of the $10K.

"sticker" price at private schools is pretty ridiculous and it seems like they quickly get down to comparable prices to state schools when they are competing for a kid they want. That can really work for you if you are interested in a place outside the norm - the schools want kids from all over the country. I wouldn't be surprised if kids from VT,ME,NH have much better packages than those from MA for example.

ND has always had a better eye for talent than BC so no wonder they gave you a better offer.

 

[Veritate Duce Progredi]

My general opinion is not to mortgage your retirement for your kid's education. They have their whole working career to pay it off and parents are running out of runway to build that nest egg.

My friend is working towards a couple pensions: military and a federal department and he's putting back a small amount. I think he'll be okay there. Not to mention, he can seek out new employment if needed.

Children do have their entire working career to pay it off but that's putting them behind the 8-ball if parents can help. I don't want my children straddled with debt but I do want them to have skin in the game.

We're not maxing a Roth but I'm putting a little into it, as well as a 457b and I'll be receiving a pension. We're also shuttling money into a group of Vanguard index funds. We decided to also start 529s so we can squirrel away any extra and it'll have time to grow. I did open two distinct 529s which was silly. I didn't realize a single 529 could act as a giant education slush fund for my children.

 

[RDU Irish]

Upromise credit card is a sneaky way to get a 529 going. Opened it when my oldest was born and it has built up nicely. Shoves 1% of spending into a Vanguard 529 plus some spending might get double or triple credit. You always have the option to add to it from there.

I do think you need to have a fair amount of time before college to make the 529 more worthwhile. Outside of a nominal state tax break in some states you only save on gains and can't claim losses (as many learned in 2009 for example). IMO, not worthwhile unless you are at least half a dozen years from college.

Then consider 0% capital gains rates anyway for folks below a 25% tax bracket. When you really boil it down - it is most beneficial to those who need it least. If you can plow a pile into it at birth and have zero expectation of any financial aid - go to town.

 

[Veritate Duce Progredi]

Upromise credit card is a sneaky way to get a 529 going. Opened it when my oldest was born and it has built up nicely. Shoves 1% of spending into a Vanguard 529 plus some spending might get double or triple credit. You always have the option to add to it from there.

I do think you need to have a fair amount of time before college to make the 529 more worthwhile. Outside of a nominal state tax break in some states you only save on gains and can't claim losses (as many learned in 2009 for example). IMO, not worthwhile unless you are at least half a dozen years from college.

Then consider 0% capital gains rates anyway for folks below a 25% tax bracket. When you really boil it down - it is most beneficial to those who need it least. If you can plow a pile into it at birth and have zero expectation of any financial aid - go to town.

I always thought everyone could use more money, or at least find rules that help them financially. Why do people above the 25% tax bracket need it least?

It seems to be for people who can put money into an account early in their children's lives and allow it compound until it's needed.

 

[Wild Bill]

Overrated IMO.

EFC's impact of 529 is maxed out at 5.64% of the balance. But, if you use Roth IRA to fund college, the FASFA application the following year will pick that up as income. Even if the Roth IRA isn't considered taxable income, it is still picked up as untaxed income in the application. IMO, this hurts more b/c if you were needing to take from a Roth to fund college, chances are you child would qualify for need based aid. Double whammy if you ask me.

Upromise credit card is a sneaky way to get a 529 going. Opened it when my oldest was born and it has built up nicely. Shoves 1% of spending into a Vanguard 529 plus some spending might get double or triple credit. You always have the option to add to it from there.

I do think you need to have a fair amount of time before college to make the 529 more worthwhile. Outside of a nominal state tax break in some states you only save on gains and can't claim losses (as many learned in 2009 for example). IMO, not worthwhile unless you are at least half a dozen years from college.

Then consider 0% capital gains rates anyway for folks below a 25% tax bracket. When you really boil it down - it is most beneficial to those who need it least. If you can plow a pile into it at birth and have zero expectation of any financial aid - go to town.

Generally speaking, what would you suggest to someone who is interested in some sort of investment for a child? I just opened a separate brokerage account for my son where I deposit his monetary gifts and a my own monthly contributions - roughly $7,000 per year. I'm open to better ideas, though.

 

[wizards8507]

Generally speaking, what would you suggest to someone who is interested in some sort of investment for a child? I just opened a separate brokerage account for my son where I deposit his monetary gifts and a my own monthly contributions - roughly $7,000 per year. I'm open to better ideas, though.

Put the first $2,000 per year in a Coverdell ESA. These other guys will have better advice for anything above that.

 

[BleedBlueGold]

Generally speaking, what would you suggest to someone who is interested in some sort of investment for a child? I just opened a separate brokerage account for my son where I deposit his monetary gifts and a my own monthly contributions - roughly $7,000 per year. I'm open to better ideas, though.

I did some digging into UGMA/UTMA accounts for kids a while ago. Ultimately decided against it for various reasons. Worth looking into though just for an option.

How old is your son? Do they offer brokerage accounts for minors that aren't UGMA/UTMA type accounts?