New to the forum - need some advice

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New to the forum - need some advice

Postby TwinkleToes » Tue Jul 16, 2013 7:56 pm

Emergency Funds: Have 6 mths
Debt: mortgage $205k @ 3.00% -15yr loan (refinanced last yr, plan to pay it off in 9yrs), Auto $15k @ 2.49% - 4yr loan
Tax filing status: Married filing jointly with one dependent child
Tax Rate: ??
State of Residence: UT
Age: Husband 38yr, Wife 41yr
Desired Asset Allocation: ??
Desired International Allocation: ??

Current Retirement
His 401k: $167k
Company Match: 4%

Target Retirement age: Husband 65yr or 67yr, Wife doesnt work
How much money needed for living expenses once retired: $100k (we have ongoing healthcare bills, we spend 15k a yr on premiums and copays/deductibles)
How much are we saving towards retirement each year: $17.5k/401k + 4% employer match + $11k/IRAS per yr

His IRAs:
2008 - Roth CD: $3.4k @ 3.247% mature date 2014
2008 - Traditional CD: $2.2k @ 3.247% mature date 2014
2009 - Roth CD: $2.3k @ 3.4% mature date 2017
2009 - Traditional CD: $7.9k @ 3.4% mature date 2017
2010 - Traditional CD: $5.3k @ 2.96% mature date 2021
2011-Traditional CD: $5.1k @ 2.23% mature date 2022
2012 - Roth: $5k MDLOX A share 5.25% front load

Her IRAs:
2008 - Traditional CD: $5.6k @ 3.247% mature date 2014
2009 - Traditional CD: $10.2k @ 3.4% mature date 2017
2010 - Traditional CD: $5.3k @ 2.96% mature date 2021
2011 - Traditional CD: $5.1k @ 2.23% mature date 2022
2012 - Roth: $5k MDLOX A share 5.25% front load

Contributions:
His 401K: $17.5k per year with 4% company match
His IRA: $5.5k per year
Her IRA: $5.5k per year

Employer barely switched to a new 401k company last week. We selected to start with the new company by picking a Roth 401k from this week onwards. Our new choices to pick from, and what our new 401k guy suggested (we decided to go along with his suggestions) are in bold below: Fees (Annual Net Expense Ratio)
Stock: (SBPYX) Clearbridge Small Cap Growth Fund (I) 20% contribution (0.90%)
Stock: (HWMAX) Hotchins & Wiley Mid-Cap Value Fund (A) (1.35%)
Stock: (HWSAX) Hotchins and Wiley Small Cap Fund (A) 20% contribution (1.34%)
Stock: (MAALX) MFS Aggressive Growth Allocation Fund (R4) (0.99%)
Stock: (NESYX) Natixis US Mutli-Cap Equity Fund (Y) 20% contribution (1.10%)
Stock: (MLPAX) Oppenheimer Steelpath MLP Fund (A) (1.50%)
Stock: (MLPDX) Oppenheimer Steelpath MLP Income Fund (A) (1.35%)
Stock: (PCRAX) PIMCO Commodity RealReturn Stgy. Fund (A) (1.19%)
Stock: (PRRSX) PIMCO R. Est. Real Return Strategy Fund (I) (0.74%)
Stock: (PCBIX) Principal MidCap Fund (I) (0.65%)
Stock: (PRHSX) T. Rowe Price health Science Fund 10% contribution (0.82%)
Stock: (TDWRX) Thornburg Developng World Fund (R6) (0.99%)
Stock: (VIFSX) Vanguard 500 Index Fund (Sig) (0.05%)
Stock: (VEIRX) Vanguard Equity Income Fund (Adm) 20% contribution (0.21%)
Stock: (VMISX) Vanguard Mid-Cap Index Fund (Sig) (0.10%)
Stock: (VSISX) Vanguard Small-Cap Index Fund (Sig) (0.10%)
Stock: (JVXIX) Virtus Foreign Opportunities Fund (I) (1.20%)
Stock: (WAIGX) Wasatch International Growth Fund 10% contribution (1.56%)
Bond: DGCIX) Delaware Corporate Bond Fund (I) (0.69%)
Bond: (IVHIX) Ivy High Income Fund (I) (0.73%)
Bond: (OOSYX) Oppenheimer Senior Floating Rate Fund (Y) (0.79%)
Bond: (PIMIX) PIMCO Income Fund (I) (0.45%)
Bond: (TGBAX) Templeton Global Bnd Fund (Adv) (0.65%)
Blended: (SGENX) First Eagle Global Fund (A) (1.15%)
Blended: (MACJX) MFS Conservative Allocation Fund (R4) (0.78%)
Blended: (MAGJX) MFS Growth Allocation Fund (R4) (0.92%)
Blended: (MAMJX) MFS Moderate Allocation Fund (R4) (0.84%)
Blended: (VTENX) Vanguard Target Retirement 2010 Fund (Inv) (0.16%)
Blended: (VTWNX) Vanguard Target Retirement 2020 Fund (Inv) (0.16%)
Blended: (VTHRX) Vanguard Target Retirement 2030 Fund (Inv) (0.17%)
Blended: (VFORX) Vanguard Target Retirement 2040 Fund (Inv) (0.18%)
Blended: (VFIFX) Vanguard Target Retirement 2050 Fund (Inv) (0.18%)
Cash/Stable Value: (VMMXX) Vanguard Prime Money Market Fund (Inv) (0.16%)


My spouse and I spoke to a very old CFP at our local Credit Union for free. He suggested we buy the MDLOX Roth IRA through the Credit Union he works for. My spouse and I have no experience with investing, so we trusted the CFP and invested in the MDLOX Mar 2013. Spouse still thinks its a great idea, since speaking to a Vanguard rep and reading this forum over the last week, I think we have made a huge mistake due the 5.35% front load and 1.07% fees.

I have read on this forum that we should take our age and do a 80% stock/20% bonds or 70%/30%. I have also read about three fund portfolio. My brain is fried by trying to learn as much as possible over the last few days. By looking at our 401k selections, we are currently doing 100% stocks/0% bonds which scares me.

My spouse just sent in our new 401k allocations, we followed our companies 401k guys suggestions. Im very concerned, because I dont trust the 401k guy.

The 401k guy classifies himself as a Registered Investment Advisor and Fiduciary. He has no formal training, no certificates, has tax liens and was a former insurance agent (he currently works for a company who is owned by Penn Mutual Life Insurance). We have met with the 401k guy once, he wants to look over all our accounts, life, auto, home insurances etc and by the sounds of it, he wants to try and sell us whole life insurance (which we dont want, we have 2 term policies on my spouse). The 401k guy does not want me to shop around for an advisor, if I do, he does not want to waste his time with me anymore, he believes he has a secret plan to make it rich by buying a whole life policy as an investment, he says its tax free, and if we are sued for some unforeseen problem like a major car accident, our assets would be protected. We had an experience last year with a New York Life Agent trying to sell us a whole life policy as an investment and we chose not to do it, and from what I've have read on this forum over the last couple of days, Im glad we chose not to.

My spouse wants to continue to meet with the 401k guy to see what he has to offer. I dont want meet with the 401k guy, I am trying to decide if its worth paying a flat fee $500-$750 to get a financial/retirement plan done by a well recognized CFP (with other credentials) that I have found on the NABCAP website or try and wing it by getting advise off of this forum. My spouse doesnt understand that the 401k guy is out to make quick $$ for himself. I have tried to show my spouse websites and this forum, spouse isnt interested. Any suggestions on helping me explain to my spouse that the 401k guy is out to line his own pockets and not ours?

I called a Vanguard representative yesterday, he explained the basics of investing, suggested 70/30 allocation (based on me taking an online quiz) and suggested we do a Vanguard Target Retirement Fund 2020 (VTHRX) or 2025 (VTTVX). He suggested we do the same thing for our IRAs.

My questions are:
1. Should we not worry about the penalty and move the 2009-2011 CDs and the MDLOX into Vanguard accounts? If so, which accounts?
2. We truly dont know how to diversify and I dont trust the 401k guys suggestions for our 401k allocations, do you have better suggestions?
3. We would like to continue to buy Roth IRAs in the future for retirement but dont know how to go about selecting them from Vanguard, should we take the Vanguard reps advise and invest in the Target Retirement Funds?
4. Are the 401k guys choices of % and selections on our 401k ok?
Last edited by TwinkleToes on Thu Jul 18, 2013 6:03 pm, edited 1 time in total.
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Re: New to the forum - need some advice

Postby Grt2bOutdoors » Tue Jul 16, 2013 9:10 pm

TwinkleToes wrote:Emergency Funds: Have 6 mths
Debt: mortgage $205k @ 3.00% -15yr loan (refinanced last yr, plan to pay it off in 9yrs), Auto $15k @ 2.49% - 4yr loan
Tax filing status: Married filing jointly with one dependent child
Tax Rate: ??
State of Residence: UT
Age: Husband 38yr, Wife 41yr
Desired Asset Allocation: ??
Desired International Allocation: ??

Current Retirement
His 401k: $167k
Company Match: 4%

Target Retirement age: Husband 65yr or 67yr, Wife doesnt work
How much money needed for living expenses once retired: $100k (we have ongoing healthcare bills, we spend 15k a yr on premiums and copays/deductibles)
How much are we saving towards retirement each year: $17.5k/401k + 4% employer match + $11k/IRAS per yr

His IRAs:
2008 - Roth CD: $3.4k @ 3.247% mature date 2014
2008 - Traditional CD: $2.2k @ 3.247% mature date 2014
2009 - Roth CD: $2.3k @ 3.4% mature date 2017
2009 - Traditional CD: $7.9k @ 3.4% mature date 2017
2010 - Traditional CD: $5.3k @ 2.96% mature date 2021
2011-Traditional CD: $5.1k @ 2.23% mature date 2022
2012 - Roth: $5k MDLOX A share 5.25% front load

Her IRAs:
2008 - Traditional CD: $5.6k @ 3.247% mature date 2014
2009 - Traditional CD: $10.2k @ mature date 2017
2010 - Traditional CD: $5.3k @ 2.96% mature date 2021
2011 - Traditional CD: $5.1k @ 2.23% mature date 2022
2012 - Roth: $5k MDLOX A share 5.25% front load

Contributions:
His 401K: $17.5k per year with 4% company match
His IRA: $5.5k per year
Her IRA: $5.5k per year

Employer barely switched to a new 401k company last week. Our new choices to pick from, and what our new 401k guy suggested (we decided to go along with his suggestions) are in bold below:
Stock: (SBPYX) Clearbridge Small Cap Growth Fund (I) 20% contribution
Stock: (HWMAX) Hotchins & Wiley Mid-Cap Value Fund (A)
Stock: (HWSAX) Hotchins and Wiley Small Cap Fund (A) 20% contribution
Stock: (MAALX) MFS Aggressive Growth Allocation Fund (R4)
Stock: (NESYX) Natixis US Mutli-Cap Equity Fund (Y) 20% contribution
Stock: (MLPAX) Oppenheimer Steelpath MLP Fund (A)
Stock: (MLPDX) Oppenheimer Steelpath MLP Income Fund (A)
Stock: (PCRAX) PIMCO Commodity RealReturn Stgy. Fund (A)
Stock: (PRRSX) PIMCO R. Est. Real Return Strategy Fund (I)
Stock: (PCBIX) Principal MidCap Fund (I)
Stock: (PRHSX) T. Rowe Price health Science Fund 10% contribution
Stock: (TDWRX) Thornburg Developng World Fund (R6)
Stock: (VIFSX) Vanguard 500 Index Fund (Sig)
Stock: (VEIRX) Vanguard Equity Income Fund (Adm) 20% contribution
Stock: (VMISX) Vanguard Mid-Cap Index Fund (Sig)
Stock: (VSISX) Vanguard Small-Cap Index Fund (Sig)
Stock: (JVXIX) Virtus Foreign Opportunities Fund (I)
Stock: (WAIGX) Wasatch International Growth Fund 10% contribution
Bond: DGCIX) Delaware Corporate Bond Fund (I)
Bond: (IVHIX) Ivy High Income Fund (I)
Bond: (OOSYX) Oppenheimer Senior Floating Rate Fund (Y)
Bond: (PIMIX) PIMCO Income Fund (I)
Bond: (TGBAX) Templeton Global Bnd Fund (Adv)
Blended: (SGENX) First Eagle Global Fund (A)
Blended: (MACJX) MFS Conservative Allocation Fund (R4)
Blended: (MAGJX) MFS Growth Allocation Fund (R4)
Blended: (MAMJX) MFS Moderate Allocation Fund (R4)
Blended: (VTENX) Vanguard Target Retirement 2010 Fund (Inv)
Blended: (VTWNX) Vanguard Target Retirement 2020 Fund (Inv)
Blended: (VTHRX) Vanguard Target Retirement 2030 Fund (Inv)
Blended: (VFORX) Vanguard Target Retirement 2040 Fund (Inv)
Blended: (VFIFX) Vanguard Target Retirement 2050 Fund (Inv)
Cash/Stable Value: (VMMXX) Vanguard Prime Money Market Fund (Inv)


My spouse and I spoke to a very old CFP at our local Credit Union for free. He suggested we buy the MDLOX Roth IRA through the Credit Union he works for. My spouse and I have no experience with investing, so we trusted the CFP and invested in the MDLOX Mar 2013. Spouse still thinks its a great idea, since speaking to a Vanguard rep and reading this forum over the last week, I think we have made a huge mistake due the 5.35% front load and 1.07% fees.
Hello and welcome to the forum! Those are very high fees to be paying, there are other less expensive alternatives available that do not require you to pay an upfront sales charge or expense ratios even remotely close to what you are being charged. However, before you invest, it is far better for you and your wife to develop an Investment Policy Statement and a desired asset allocation. It appears from your post above, you aren't sure what your asset allocation is. Have you read the wiki? Search for asset allocation and samples of Investment Policy Statement. You can rent from your local library - The Bogleheads Guide to Investing and/or John Bogles - Little Book of Common Sense Investing.

I have read on this forum that we should take our age and do a 80% stock/20% bonds or 70%/30%. I have also read about three fund portfolio. My brain is fried by trying to learn as much as possible over the last few days. By looking at our 401k selections, we are currently doing 100% stocks/0% bonds which scares me.Yes, you are, however, your current asset allocation should be viewed in totality - the sum of your 401k plus you and your wifes conservatively invested in CD's Roth IRA's. You can consider the CD's to be the equivalent of fixed income. I count 167K in 401K as equity and approximately $52.3K in a combination of Roth and Traditional CD's. Your current AA is 76.15% equity and 23.84% fixed income. You should not make any rash decisions regarding asset allocation until you've had time to spend a few hours reading those books I suggested above and perusing the wiki concerning asset allocation. Your asset allocation should be determined after you consider you need, ability and willingness to take risk. It sounds like you are not comfortable holding 100% equity in the 401k.

My spouse just sent in our new 401k allocations, we followed our companies 401k guys suggestions. Im very concerned, because I dont trust the 401k guy. I would never blindly follow someone's suggestion before becoming more informed and comfortable with the suggestions. Go with your "gut" - instincts work for a reason. One point I'd like to make is the 401k guy didn't suggest the lowest cost options which were the Vanguard index funds or any of the all-in-one highly diversified and low cost retirement target funds.

The 401k guy classifies himself as a Registered Investment Advisor and Fiduciary. He has no formal training, no certificates, has tax liens and was a former insurance agent (he currently works for a company who is owned by Penn Mutual Life Insurance). We have met with the 401k guy once, he wants to look over all our accounts, life, auto, home insurances etc and by the sounds of it, he wants to try and sell us whole life insurance (which we dont want, we have 2 term policies on my spouse). The 401k guy does not want me to shop around for an advisor, if I do, he does not want to waste his time with me anymore, he believes he has a secret plan to make it rich by buying a whole life policy as an investment, he says its tax free, and if we are sued for some unforeseen problem like a major car accident, our assets would be protected. We had an experience last year with a New York Life Agent trying to sell us a whole life policy as an investment and we chose not to do it, and from what I've have read on this forum over the last couple of days, Im glad we chose not to.
Do not buy whole life insurance, the only fiduciary this fellow is representing will be his own pocket.
My spouse wants to continue to meet with the 401k guy to see what he has to offer. I dont want meet with the 401k guy, I am trying to decide if its worth paying a flat fee $500-$750 to get a financial/retirement plan done by a well recognized CFP (with other credentials) that I have found on the NABCAP website or try and wing it by getting advise off of this forum. My spouse doesnt understand that the 401k guy is out to make quick $$ for himself. I have tried to show my spouse websites and this forum, spouse isnt interested. Any suggestions on helping me explain to my spouse that the 401k guy is out to line his own pockets and not ours? You do not need to meet with the 401K guy, if you are able to read a few books you can do this on your own and save thousands of dollars that I assure you this guy will siphon from your pockets to his. His first year commission on a whole life policy can equal the sum total of your first year premiums. Whole life is not an investment, it's a special vacuum cleaner designed to siphon money in the form of commissions and ridiculous fees from your bank account to that of the life insurance salesman and the company he works for. Just search the forum for tales of whole life insurance "woe".

I called a Vanguard representative yesterday, he explained the basics of investing, suggested 70/30 allocation (based on me taking an online quiz) and suggested we do a Vanguard Target Retirement Fund 2020 (VTHRX) or 2025 (VTTVX). He suggested we do the same thing for our IRAs.

My questions are:
1. Should we not worry about the penalty and move the 2009-2011 CDs and the MDLOX into Vanguard accounts? If so, which accounts?I would leave the CD's until they mature, then move them using a trustee to trustee transfer to Vanguard, but not until you develop an asset allocation plan with out the 401k guy or life insurance salesman's "help".
2. We truly dont know how to diversify and I dont trust the 401k guys suggestions for our 401k allocations, do you have better suggestions? Read the wiki on asset allocation, read The Bogleheads Guide to Investing, ask any and all questions here, this is the biggest bunch of unbiased advisers you will ever meet - a lot of very knowledgeable folks on this forum.
3. We would like to continue to buy Roth IRAs in the future for retirement but dont know how to go about selecting them from Vanguard, should we take the Vanguard reps advise and invest in the Target Retirement Funds? The Target Retirement funds are a very low cost, highly diversified investment, however, you should not make any investments until you understand your ability, need and willingness to take risk and formulate an asset allocation plan that will allow you to stay the course and sleep at night.
4. Are the 401k guys choices of % and selections on our 401k ok?

No, that can't be determined until you decide what asset allocation you are comfortable with.
"Luck is not a strategy" Asking Portfolio Questions
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Re: New to the forum - need some advice

Postby pennstater2005 » Tue Jul 16, 2013 9:12 pm

Your 401k guy wants to look over all your other policies to make sure he isn't missing out on any more of your money. What is a health science fund? You may want to include expense ratios with all of the options you listed within your 401k to get better help. There are some decent options in your 401k notably the Vanguard SP500 index fund and even the Vanguard Target date funds. You need to decide on an overall asset allocation first and go from there. 70/30 stock/bond may be slightly aggressive for someone your age but that's a matter of opinion. Could you stomach a 40 or 50% loss of your portfolio and hang on without selling. If not you may be better suited for a slightly less aggressive asset allocation. More posters will be along to help :happy

I would also recommend starting with some reading

http://www.bogleheads.org/wiki/Getting_Started

Edit: Grt2BOutdoors has some solid advice.
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Re: New to the forum - need some advice

Postby Duckie » Tue Jul 16, 2013 9:28 pm

TwinkleToes wrote:My questions are:
1. Should we not worry about the penalty and move the 2009-2011 CDs and the MDLOX into Vanguard accounts? If so, which accounts?

I don't know much about CDs but these interest rates seem pretty good right now. I think you should keep them. Where are the CDs held? A bank or a brokerage?

MDLOX is a different matter. You should each sell that fund, open Roth IRAs at Vanguard and roll the money over in a trustee-to-trustee transfer. Have Vanguard "pull" the money. Put it in one of the TR funds.

2. We truly don't know how to diversify and I dont trust the 401k guys suggestions for our 401k allocations, do you have better suggestions?

Yes. First you need to post the expense ratios for each fund, but the three Vanguard index funds (500 Index, Mid Cap Index, Small Cap Index) and the Vanguard TR funds are probably the cheapest options.

3. We would like to continue to buy Roth IRAs in the future for retirement but dont know how to go about selecting them from Vanguard, should we take the Vanguard reps advise and invest in the Target Retirement Funds?

Since you have no taxable retirement accounts, one of the TR funds would be perfect for both IRAs and the 401k. Since you have a fair chunk of fixed income in CDs (VTTVX) Vanguard Target Retirement 2025 Fund (0.17%) in the IRAs and (VTWNX) Vanguard Target Retirement 2020 Fund (???%) in the 401k would work just fine.

4. Are the 401k guys choices of % and selections on our 401k ok?

No. Those choices way overweight small-caps and have no bonds.

At ages around 40 I would recommend an overall AA of around 65% stocks, 35% bonds, with 30% of stocks in international. That would break down to 45% US stocks, 20% international stocks, and 35% bonds/CDs. How does that sound?

Just some possibilities.
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Re: New to the forum - need some advice

Postby Novine » Tue Jul 16, 2013 9:56 pm

From Morningstar:
SBPYX - 0.90%
HWSAX - 1.34%
NESYX - 1.05%
PRHSX - 0.79%
VEIRX - 0.21%
WAIGX - 1.57%

Compare to the Vanguard funds:
VIFSX - 0.05%
VEIRX - 0.21%
VMISX - 0.10%
VSISX - 0.10%

Explain to your spouse that the differences between the fund expenses results in money being taken away from your retirement. 1% difference may not sound like much but over time will have a significant impact on your returns.

"I dont want meet with the 401k guy, I am trying to decide if its worth paying a flat fee $500-$750 to get a financial/retirement plan done by a well recognized CFP (with other credentials) that I have found on the NABCAP website or try and wing it by getting advise off of this forum. My spouse doesnt understand that the 401k guy is out to make quick $$ for himself. I have tried to show my spouse websites and this forum, spouse isnt interested."

Sounds like your spouse buys into the "finances are complicated" viewpoint. My experience is that people who accept this viewpoint aren't easily convinced that one can easily manage their own finances. They gravitate to "experts" even though we often see that these "experts" are more interested in lining their own pockets. In your case, it may be worthwhile to spend the money to get an unbiased viewpoint who can assist in convincing your spouse that the advice your getting from the "401k guy" isn't in your best interest.
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Re: New to the forum - need some advice

Postby bottlecap » Wed Jul 17, 2013 7:32 am

Welcome to the forum. You've received some good advice here. Slow down a bit and come up with a plan. Put the 401k guy ont the back burner. Who says "I won't have time for you if you shop around," anyway? Car dealers and scam artists, that's who.

I did want to point out one other thing. If you are concerned about spending $500 to $750 on a fee only CFP, consider that everyone you've spoken to so far stands to make a whole lot more money on you than that. The "free" consult at the credit union cost you $525, and will continue to cost you every year, for 1 poor recommendation far short of a plan.

My point is that short of educating yourself here, a small amount of money spent with an actual fiduciary will save you a lot of money in the long run.

Good luck,

JT
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Re: New to the forum - need some advice

Postby TwinkleToes » Thu Jul 18, 2013 6:13 pm

Thank you the for warm welcomes and your help. I'm so glad I found this forum. You guys are awesome, I appreciate the great advice that was given from all of you.

Grt2bOutdoors: I plan on getting a hold of those books you suggested, we (hubby and I) wont make any investment decisions until we have read those books and understand what we are doing.

I will get working on the IPS and Asset Allocation with my hubby. I have no intention of buying whole life insurance for an investment (and to line the 401k guys pocket), I'm happy with the term policies we have.
I need to learn what equity ,fixed income and other terminology means (I'm wondering if a money-finance/investing book for dummies would be more helpful to me for a first book, since the terms are foreign to me).

I'm originally from another country, lived here in the US for 14yrs. I have sat back and expected hubby to take care of all our finances for far too long (he hasnt had time to educate himself about investments). I plan on being more proactive, by educating myself first, then hopefully I'll get hubby on board too.

pennstater2005: Thanks for link, I"ll start there.

Duckie: I've posted the fees next to each 401k choice.

Novine: I will explain to my hubby that fees do matter.

bottlecap: I do plan on putting the 401k guy on the back burner. No decisions will be made until we do come up with a plan. You are right, it already cost us $525 for the advice from a credit union. I dont mind spending $500-750 for someone to give us sound advice. Before we head in that direction I'm going to read the books suggested and post some more questions on here.

Any suggestions on how to protect the assets we do have? Get an umbrella policy, if so... for how much? Or should I put this on hold too until I have read some books?
Last edited by TwinkleToes on Fri Jul 19, 2013 3:36 pm, edited 1 time in total.
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Re: New to the forum - need some advice

Postby Duckie » Thu Jul 18, 2013 8:47 pm

TwinkleToes wrote:I need to learn what equity ,fixed income and other terminology means (I'm wondering if a money-finance/investing book for dummies would be more helpful to me for a first book, since the terms are foreign to me).

Check out the Dictionary and the Search function in Investopedia. This is the perfect site for financial terms.

I've posted the fees next to each 401k choice.

Given the high expense ratios for everything except Vanguard, I'd switch all contributions and all current assets into either the TR 2020 or TR 2030 fund.
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Re: New to the forum - need some advice

Postby TwinkleToes » Fri Jul 19, 2013 3:25 pm

Duckie:
I don't know much about CDs but these interest rates seem pretty good right now. I think you should keep them. Where are the CDs held? A bank or a brokerage?

MDLOX is a different matter. You should each sell that fund, open Roth IRAs at Vanguard and roll the money over in a trustee-to-trustee transfer. Have Vanguard "pull" the money. Put it in one of the TR funds.

Check out the Dictionary and the Search function in Investopedia. This is the perfect site for financial terms.


The CDs are at a bank. I dont know if I should wait to read the books suggested before I move the MDLOX or not? Thank you for the Investopedia link :)

More questions:
1. I tried explaining how fees matter to my hubby. For example: the choice selection on our 401k. He says if his choices have an average 10% return (over a 10yr period), then he doesnt mind the 1.0% or higher fees. For example two of his choices are: HWSAX (1.10% fee) with 5yr return earning an average 10.96% or NESYX (1.34% fee) 5yr return of an average of 7.80%.....versus VTTVX Vanguard Target Retirement 2025 Fund (0.17%) getting 6.13% approx return. I havent had a chance to read the books yet and Im not good with math. Can anyone give me an example on how it pays to select allocations that have low fees?

2. If my hubbys selection is already entered into his 401k company's system (we just switched 401k companys last week). Is there a fee involved when you switch your allocations/choices in your 401k??
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Re: New to the forum - need some advice

Postby ruralavalon » Fri Jul 19, 2013 3:36 pm

More questions:
1. I tried explaining how fees matter to my hubby. For example: the choice selection on our 401k. He says if his choices have an approx 10% return (over a 10yr period), then he doesnt mind the 1. 10 or 1.34% fee. I havent had a chance to read the books yet and im not good with math. Can anyone give me an example on how it pays to select allocations that have low fees?
2. If my hubbys selection is already entered into his 401k company's system (we just switched 401k companys last week). Is there a fee involved when you switch your allocations/choices in your 401k??


1. Seemingly small percentage expenses have a tremendous effect when they recur every single year and compound. Just a 1% fee over 10 years reduces his end-point balance by 4.9% and a half years worth of his hoped for annual 10% gain (by 4.9%), and over 20 years reduces his end-point balance by 9.5% and about a whole years worth of his hoped for 10% annual gain (by 9.5%). "Even in times like these, with very low risk-free rates of return, I don’t think most people appreciate that fees of 'as little as 1% a year' amount to giving away more than a quarter of your wealth over 30 years." Stopping the silent killer of returns .

And there is very good reason that all investment ads or promotions are required by law to say that past perfomances does not indicate future results. It doesn't predict. The best known predictor of higher future performance is lower investing expenses.

"[I]n all but a few cases, fees are the keys to future returns . . . , because fees have the greatest impact on reducing a fund’s total return that is distributed to shareholders." "[F]und returns are driven most directly by mutual fund expenses and transaction costs." "Expense ratios remained consistent as a predictor of overperformance, . . . . ."

"[S]urvivorship bias is present in nearly all studies of mutual fund performance. According to Rekenthaler, 'most investors – as well as most finance professors and money managers – use the past as a starting point for evaluating the future. But when you eliminate dead funds from the record books, you get survivorship bias – long-term results reflect the performance of only those funds that survived, making the numbers look better than they really are' "

Financial Planning and Counseling, Predicting Mutual Fund Over-Performance Over A Nine-Year Period .

See also: Sharpe,The Arithmetic of Active Management ; Fama and French, Why Active Investing Is a Negative Sum Game ; and Swedroe, Taking on Lies About Active .

"The year 2012 marked the return of the double digit gains across all the domestic and global equity benchmark indices. The gains passive indices made did not, however, translate into active management, as most active managers in all categories except large-cap growth and real estate funds underperformed their respective benchmarks in 2012. Performance lagged behind the benchmark indices for 63.25% of large-cap funds, 80.45% of mid-cap funds and 66.5% of small cap funds. " From: Year-End 2012, S&P INDICES VERSUS ACTIVE FUNDS (SPIVA) SCORECARD, S&P Dow Jones Indices

2. Usually there is no fee for changing. Sometimes he might have to wait a few months before being able to switch. It depends on the provisions of his particular plan.
Last edited by ruralavalon on Mon Jul 22, 2013 2:58 pm, edited 1 time in total.
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Re: New to the forum - need some advice

Postby Novine » Fri Jul 19, 2013 11:28 pm

"He says if his choices have an average 10% return (over a 10yr period), then he doesnt mind the 1.0% or higher fees. For example two of his choices are: HWSAX (1.10% fee) with 5yr return earning an average 10.96% or NESYX (1.34% fee) 5yr return of an average of 7.80%.....versus VTTVX Vanguard Target Retirement 2025 Fund (0.17%) getting 6.13% approx return."

You have to be careful with these comparisons. Theses are 3 very different funds that are trying to accomplish very different things. A small-cap fund can generate big returns but with a lot of volatility. The HWSAX has had twice had double-digit negative returns in the past 5 years. A Target Retirement fund is a combination of equities and bonds and is intended to balance returns with stability. That fund isn't generally going to have the returns of a small-cap fund but also not the losses either. Funds should be selected based on asset allocation and fees. Picking funds based on past performance is generally not a good idea.
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Re: New to the forum - need some advice

Postby rickmerrill » Sat Jul 20, 2013 12:10 am

Twinkle,

Just by finding this forum and getting you investment information in the proper format to ask portfolio questions shows you are capable of doing this! When the time is right you might "bring out the big guns" and show DH just how much fees will rob you of your wealth. Here is an online calculator that not only shows the cost of the annual fees but also the opportunity cost of not being able to invest the difference each year: http://www.buyupside.com/calculators/feesdec07.htm.
It's amazing just how much is lost over a period of 20 or 30 years.
If I am stupid I will pay.
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Re: New to the forum - need some advice

Postby ruralavalon » Mon Jul 22, 2013 1:42 pm

TwinkleToes wrote: I tried explaining how fees matter to my hubby. For example: the choice selection on our 401k. He says if his choices have an average 10% return (over a 10yr period), then he doesnt mind the 1.0% or higher fees. For example two of his choices are: HWSAX (1.10% fee) with 5yr return earning an average 10.96% or NESYX (1.34% fee) 5yr return of an average of 7.80%.....versus VTTVX Vanguard Target Retirement 2025 Fund (0.17%) getting 6.13% approx return. I havent had a chance to read the books yet and Im not good with math. Can anyone give me an example on how it pays to select allocations that have low fees?

Here is a short and simple article about the very large cummulative impact of those seemingly small percentage expense ratios, and the trading fees from high-turnover active management:

Demos (2012) wrote:•The median expense ratio of mutual funds in 401(k) plans was 1.27 percent in 2010.
•Trading costs vary from year to year, but have been estimated to average approximately 1.2 percent a year as well.
•In the long run, the average mutual fund earns a 7 percent return, before fees, matching the average return of the overall stock market. However, the post-fee returns average only 4.5 percent, meaning that, on average, fees eat up over a third of the total returns earned by mutual funds. [emphasis added]
The Retirement Savings Drain: Hidden & Excessive Costs of 401(k)s .


TwinkleToes wrote:We have met with the 401k guy once, he wants to look over all our accounts, life, auto, home insurances etc

Its not a bad idea to look at everything together, especially try to look at all investment accounts as a single unified whole, rather than look at each investment account separately. Also, maybe look at increasing deductibles on home, auto etc. to decrease rates. Or perhaps increase liability coverage limits or add umbrella coverage (it not real expensive), if you want to add some more asset protection.


TwinkleToes wrote: . . . and by the sounds of it, he wants to try and sell us whole life insurance (which we dont want, we have 2 term policies on my spouse).

Stick to your guns on life insurance. Whole life is almost always a very bad "investment" idea (the very rare exception might be funding the care of a special needs child, for after the parents' passing). Stick with term.


TwinkleToes wrote: . . . the 401k guy . . . . . by the sounds of it [wants us to buy] whole life policy as an investment, he says its tax free, and if we are sued for some unforeseen problem like a major car accident, our assets would be protected.

401k assets are well protected from creditors, "[t]he Employee Retirement Income Security Act (ERISA) provides 401Ks and other ERISA-governed retirement plans with rock-solid protection from creditor judgments", Wiki article link: Asset protection . So don't let any sales pitch get to you on the basis of protection from creditors. Creditor protection of IRAs varies by state. And 401ks and IRAs both are also tax protected.


The better choices in the 401k are:

(VIFSX) Vanguard 500 Index Fund (Sig) (0.05%)
(VMISX) Vanguard Mid-Cap Index Fund (Sig) (0.10%)
(VSISX) Vanguard Small-Cap Index Fund (Sig) (0.10%)
(PIMIX) PIMCO Income Fund (I) (0.45%), <= intermediate term, multi-sector bond fund , PIMIX, on Morningstar .
the Target Retirement Funds


TwinkleToes wrote:His IRAs:
2008 - Roth CD: $3.4k @ 3.247% mature date 2014
2008 - Traditional CD: $2.2k @ 3.247% mature date 2014
2009 - Roth CD: $2.3k @ 3.4% mature date 2017
2009 - Traditional CD: $7.9k @ 3.4% mature date 2017
2010 - Traditional CD: $5.3k @ 2.96% mature date 2021
2011-Traditional CD: $5.1k @ 2.23% mature date 2022
2012 - Roth: $5k MDLOX A share 5.25% front load
. . . . .
Should we not worry about the penalty and move the 2009-2011 CDs and the MDLOX into Vanguard accounts? If so, which accounts?

CDs are not a bad idea for part of your bond allocation, in fact they are a good idea. Might as well just keep the CDs where they are (I assume that's at a federally insured bank).

If possible I would suggest moving the money in MDLOX to a Vanguard IRA and buying a nice low expense fund there, the MDLOX front load is lost forever but you can still avoid the yearly expenses. Do a trustee to trustee transfer, to make sure you don't get unintended tax consequences. Call Vanguard, they can tell you exactly how to do this and can help you with the paperwork.
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