How to start investing with nothing

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Joe1Joe
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How to start investing with nothing

Post by Joe1Joe » Thu Nov 05, 2015 1:03 pm

Hey guys I'm trying to figure out the best way to invest small amounts with 0 starting cash. I wanna dca about 100-150 a month and eventually have a 3 fund portfolio.

Lived frugally to pay down debt, no school or car loans and I rent
Currently have 15k cash which is 12+ months of expenses
401k is contributed to fully
26 with a long term outlook

What's my best way to go about this. I'm saving for a house so most of my cash will go to that eventually and it's why I have several months expenses on hand. Most of the money I save monthly will also go to that fund which is why I'll only have about 100-150 in my budget leftover. When I get extra money I would also contribute to the funds and after buying a house increase my contribution

It looks like my only 2 choices are open with schwab as they have really low fund minimums ($100) and use their no transaction fee funds. Great total us fund but bond and international are just ok, fees are between 0.40 and 0.55

Option 2 is open with vanguard and just put 3k cash into it(that is their minimum) and only invest what I add monthly into their free etfs and not touch my 3k. Vanguard funds have minimums in the $1000's so I can't do those

I'm looking for better ideas, alternatives or if one of my two options are better than the other.

Thanks

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53timr
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Re: How to start investing with nothing

Post by 53timr » Thu Nov 05, 2015 2:32 pm

You could open a Vanguard account and invest in a Target Retirement Fund with a $1000 minimum. Use the fund that has an asset allocation closest to what your 3 fund portfolio would have. Keep dollar cost averaging into that account and when you have enough in the account, swap to your choice of index funds.
“I take my investment advice from my dentist, because he’s just as likely to lose me money as a financial advisor.” | ― Jarod Kintz, This Book Title is Invisible

LateStarter1975
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Re: How to start investing with nothing

Post by LateStarter1975 » Thu Nov 05, 2015 2:39 pm

53timr wrote:You could open a Vanguard account and invest in a Target Retirement Fund with a $1000 minimum. Use the fund that has an asset allocation closest to what your 3 fund portfolio would have. Keep dollar cost averaging into that account and when you have enough in the account, swap to your choice of index funds.
This would be my preferred strategy if I were in your shoes
Debt is dangerous...simple is beautiful

Grt2bOutdoors
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Re: How to start investing with nothing

Post by Grt2bOutdoors » Thu Nov 05, 2015 2:59 pm

Welcome to the forum!

Go with Schwab until you reach critical mass - either $1K or $3K, then either sell and move the funds to Vanguard or stay with Schwab.
Don't be fixated on fees of .40 or .55 with your first $1,000 or even $3,000, the difference between .40 or .55 and expense ratio's of .18 is approximately $2.20 for a $1,000 account or $6.60 for a $3,000 account over a one year period. Let's say it takes you 3 years to hit $3,000, even that would run you roughly $20 in expense ratio added cost if you stuck with Schwab, but if the Schwab fund returned 10% over that 3 year period, you would still be up $280, now that's REAL MONEY!!!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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dratkinson
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Re: How to start investing with nothing

Post by dratkinson » Thu Nov 05, 2015 4:33 pm

53timr wrote:You could open a Vanguard account and invest in a Target Retirement Fund with a $1000 minimum. Use the fund that has an asset allocation closest to what your 3 fund portfolio would have. Keep dollar cost averaging into that account and when you have enough in the account, swap to your choice of index funds.
The beauty of an all-in-one fund is its simplicity: it takes care of itself, so nothing for you to manage after the purchase; just keep DCAing. So later/after growth, you can keep the single fund, instead of splitting it up to manage the separate pieces. Your choice.

Vanguard has two types, both with a $1K minimum: target date retirement funds (more conservative allocation as you age) and LifeStrategy funds (constant allocation). Your choice.


Welcome.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.

Grt2bOutdoors
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Re: How to start investing with nothing

Post by Grt2bOutdoors » Thu Nov 05, 2015 4:40 pm

dratkinson wrote:
53timr wrote:You could open a Vanguard account and invest in a Target Retirement Fund with a $1000 minimum. Use the fund that has an asset allocation closest to what your 3 fund portfolio would have. Keep dollar cost averaging into that account and when you have enough in the account, swap to your choice of index funds.
The beauty of an all-in-one fund is its simplicity: it takes care of itself, so nothing for you to manage after the purchase; just keep DCAing. So later/after growth, you can keep the single fund, instead of splitting it up to manage the separate pieces. Your choice.

Vanguard has two types, both with a $1K minimum: target date retirement funds (more conservative allocation as you age) and LifeStrategy funds (constant allocation). Your choice.


Welcome.
I think everyone missed the OP's post where he states "I can only afford to contribute $100/$150 per month". He doesn't have the $1K to open the all-in-one fund, I really don't get why everyone is talking about these funds, when clearly the OP in his own words has indicated he wants an option that only requires a minimum entry point of $100-$150 per month.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

livesoft
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Re: How to start investing with nothing

Post by livesoft » Thu Nov 05, 2015 4:42 pm

Have you thought about a Roth IRA as a holding place for your emergency fund?
https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

You might start a Roth and invest it conservatively, at least for your emergency fund bit, say a Vanguard Target Retirement Income fund.

If you would not have a Roth at all because you believe you cannot use it for non-retirement things, please think again. One can use it for non-retirement things if one follows the rules.

So you do have the $1,000 to start with an all-in-one fund, but you just didn't know it.
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ThisTimeItsDifferent
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Re: How to start investing with nothing

Post by ThisTimeItsDifferent » Thu Nov 05, 2015 4:48 pm

I don't know whether it is still true but T Rowe Price did not have a minimum initial investment for their automatic asset builder if you have it automatically contribute. They have perfectly fine target date type funds also. Even if the ERs are slightly higher than Vanguard, it is insignificant when you start.
Last edited by ThisTimeItsDifferent on Thu Nov 05, 2015 5:04 pm, edited 1 time in total.

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BL
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Re: How to start investing with nothing

Post by BL » Thu Nov 05, 2015 4:57 pm

If you are saving for a house borrow $1k from yourself for a target Retirement fund at Vanguard and then pay yourself back with the monthly amounts you choose. You can add small increments to your account whenever you decide to do so. Be sure to sign up for e-statements to avoid low-balance account fees.

Yes you could put part of your emergency fund into a Roth IRA there with most of it in a short term bond ($3k+) but $1k in a target fund. Then you could add 100+ to the short term bond to pay yourself back. Another possibility is just take $1k from emergency fund and put it in a conservative target income fund (target retirement income) while you pay yourself back.

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Index Fan
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Re: How to start investing with nothing

Post by Index Fan » Thu Nov 05, 2015 5:16 pm

BL wrote:If you are saving for a house borrow $1k from yourself for a target Retirement fund at Vanguard and then pay yourself back with the monthly amounts you choose. You can add small increments to your account whenever you decide to do so. Be sure to sign up for e-statements to avoid low-balance account fees.
This.
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dratkinson
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Re: How to start investing with nothing

Post by dratkinson » Thu Nov 05, 2015 6:29 pm

Grt2bOutdoors wrote:
dratkinson wrote:
53timr wrote:You could open a Vanguard account and invest in a Target Retirement Fund with a $1000 minimum. Use the fund that has an asset allocation closest to what your 3 fund portfolio would have. Keep dollar cost averaging into that account and when you have enough in the account, swap to your choice of index funds.
The beauty of an all-in-one fund is its simplicity: it takes care of itself, so nothing for you to manage after the purchase; just keep DCAing. So later/after growth, you can keep the single fund, instead of splitting it up to manage the separate pieces. Your choice.

Vanguard has two types, both with a $1K minimum: target date retirement funds (more conservative allocation as you age) and LifeStrategy funds (constant allocation). Your choice.


Welcome.
I think everyone missed the OP's post where he states "I can only afford to contribute $100/$150 per month". He doesn't have the $1K to open the all-in-one fund, I really don't get why everyone is talking about these funds, when clearly the OP in his own words has indicated he wants an option that only requires a minimum entry point of $100-$150 per month.
My bad, should have been more clear. I'm assuming his "Currently have 15k cash..." is fungible, so he can buy an all-in-one fund and pay himself back, while meeting his DCA target in future.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.

Twins Fan
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Re: How to start investing with nothing

Post by Twins Fan » Thu Nov 05, 2015 7:06 pm

Look up using a Roth IRA as part of you emergency fund, keep utilizing/filling the 401k as you are, and save for the house. My take on it anyway.

I believe you're talking about a taxable account? Not that it's completely pointless to contribute a little to an account each month. But, we're talking $1200 - 1500 a year or so. That's not going to make or break you. Put it all towards the house savings for now.

deji
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Re: How to start investing with nothing

Post by deji » Thu Nov 05, 2015 7:15 pm

For the record, I think the above of placing a portion of your emergency fund in a Roth IRA or borrowing against yourself the $1K are your best bets.

If however, like one poster mentioned, you really don't have to access to the $1K (which doesn't sound like the case from your OP) or you're just unwilling to dip into that fund but want to put money in the market now, you could start an account with Wisebanyan. I have a Roth IRA with them and I presently have no complaints.

There are downsides of course, like you don't have control over asset allocation just preference of stocks vs bonds and their business model doesn't seem that sustainable (why I would just do a Roth IRA with them), but the minimum to get started there is just $10. After you accrue enough, just move the funds over to Vanguard and start your 3-fund portfolio!

small_index
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Re: How to start investing with nothing

Post by small_index » Thu Nov 05, 2015 7:28 pm

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Last edited by small_index on Sat Dec 12, 2015 1:22 am, edited 1 time in total.

anil686
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Re: How to start investing with nothing

Post by anil686 » Thu Nov 05, 2015 8:02 pm

I am partial to Vanguard due to Mr. Bogle and the culture he created for investors first and championing indexed investments. That being said, whether it is Vanguard, Fidelity or Schwab that can provide solutions that are affordable and convenient are key. I believe Schwab has a total us stock market index fund that follows the DJ total stock market index (not to be confused with the DJ Industrial Average) with an ER of 0.09% and a $100 minimum with subsequent contributions as little as $1 (SWTSX). This is likely going to track the CRSP total market index which VG uses pretty closely and would be a good choice for a total market index fund that is inexpensive and meets your minimum criteria. Furthermore you could DCA into it like you planned. As for bond funds, I personally would keep them in your 401K anyway and so would not be putting them in a taxable account (your preference though) since they generate taxable interest. As for international, you are right - Schwab does not have great offerings, but if your 401K offers a good fund - you may choose to allocate more to international in your 401k and hold none in the taxable account. Or your could use the Schwab Developed international - that ER is only 0.19%.

JMO though and hope it helps...

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53timr
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Re: How to start investing with nothing

Post by 53timr » Fri Nov 06, 2015 12:16 pm

Grt2bOutdoors wrote:
I think everyone missed the OP's post where he states "I can only afford to contribute $100/$150 per month". He doesn't have the $1K to open the all-in-one fund, I really don't get why everyone is talking about these funds, when clearly the OP in his own words has indicated he wants an option that only requires a minimum entry point of $100-$150 per month.
The OP also stated:
"Option 2 is open with vanguard and just put 3k cash into it(that is their minimum) and only invest what I add monthly into their free etfs and not touch my 3k. Vanguard funds have minimums in the $1000's so I can't do those"

I don't think the OP realized he could open certain Vanguard funds with only $1000. I think he also mistakenly thought that additional investments had to be in increments of at least $1000 in Vanguard funds.
“I take my investment advice from my dentist, because he’s just as likely to lose me money as a financial advisor.” | ― Jarod Kintz, This Book Title is Invisible

Grt2bOutdoors
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Re: How to start investing with nothing

Post by Grt2bOutdoors » Fri Nov 06, 2015 12:50 pm

dratkinson wrote:
Grt2bOutdoors wrote:
dratkinson wrote:
53timr wrote:You could open a Vanguard account and invest in a Target Retirement Fund with a $1000 minimum. Use the fund that has an asset allocation closest to what your 3 fund portfolio would have. Keep dollar cost averaging into that account and when you have enough in the account, swap to your choice of index funds.
The beauty of an all-in-one fund is its simplicity: it takes care of itself, so nothing for you to manage after the purchase; just keep DCAing. So later/after growth, you can keep the single fund, instead of splitting it up to manage the separate pieces. Your choice.

Vanguard has two types, both with a $1K minimum: target date retirement funds (more conservative allocation as you age) and LifeStrategy funds (constant allocation). Your choice.


Welcome.
I think everyone missed the OP's post where he states "I can only afford to contribute $100/$150 per month". He doesn't have the $1K to open the all-in-one fund, I really don't get why everyone is talking about these funds, when clearly the OP in his own words has indicated he wants an option that only requires a minimum entry point of $100-$150 per month.
My bad, should have been more clear. I'm assuming his "Currently have 15k cash..." is fungible, so he can buy an all-in-one fund and pay himself back, while meeting his DCA target in future.
No, my bad, :oops: I missed Option 2, where he could just lumpsum the entire $3K into it. Sorry.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

cheapedy
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Re: How to start investing with nothing

Post by cheapedy » Fri Nov 06, 2015 1:01 pm

Just to clarify, is the Vanguard Target Retirement Fund an IRA, or merely a supplement to your 401k and IRA as there are no limits to how much you can contribute?

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BL
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Re: How to start investing with nothing

Post by BL » Fri Nov 06, 2015 1:43 pm

cheapedy wrote:Just to clarify, is the Vanguard Target Retirement Fund an IRA, or merely a supplement to your 401k and IRA as there are no limits to how much you can contribute?
It is an all-in-one self-balancing fund that you can buy for any type of account if desired. It is a Target date fund, just like any other fund. You pick the date supposedly based on year you will retire. It is made up of Total Stock Market, Total International Stock market, Total bond market, and Total International bond market in varying ratios, from aggressive (more stocks) changing to more conservative (less stocks) nearer date funds as it gets close to retirement. The TR Income fund is the last step with some inflation bonds added, and that one is fixed at 30% stocks to be the most conservative.
https://investor.vanguard.com/retiremen ... ment-funds

Hope that helps.

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dratkinson
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Re: How to start investing with nothing

Post by dratkinson » Fri Nov 06, 2015 3:53 pm

Joe1Joe. To be clear, because it is not specifically stated above, and I should have explained it better.


Saving for short term needs/goals (emergency fund, home down payment,...) Save this in a taxable account (checking, savings, CDs,...). Why? Because taxable accounts are refillable (no annual contribution limits): take some money, put some money back, not a problem.

It is NOT recommended to save for known ST needs/goals in a tax-advantaged (retirement) account. Why? Because TA accounts have annual contribution limits---they are not refillable---so you can't put the money back after an early withdrawal. I liken early withdrawals from a TA account to killing the golden goose siting on our nest egg. Others say it's only stealing a few eggs. Either way, your retirement growth potential is permanently harmed.

Bottom line. Save for ST goals in a taxable account.


Saving for retirement. Your monthly DCA ($100-150) is for retirement, and your all-in-one fund is in an IRA. Why? Because all-in-one funds use taxable bonds so better (more tax efficient) placed in a tax-advantaged account (401k, IRA,...).

If you fill all of your annual TA space (401k, IRA,...) and have more to invest toward your retirement, then begin saving for retirement in a taxable account. The difference now is that you select each fund for tax-efficiency. This is done by using total stock market, total international stock market, and an intermediate-term national municipal bond fund. (The use of muni bonds assumes you are in the 25%+ fed tax bracket, which you probably are since you've fill all your annual TA space and are still investing.)

So your 3-fund retirement portfolio in TA accounts can be as simple as an all-in-one fund; because your tax-efficiency comes from the account wrapper. Your 3-fund retirement portfolio in a taxable account must use separate funds and each is selected for tax-efficient; because there is no tax-efficient account wrapper.

Bottom line. Your TA accounts must be the last ones tapped prior to retirement, and then only in a dire emergency. Recall it being suggested to tap emergency funds in this order: credit card, savings/CD, taxable retirement accounts (interest lost), HELOC (low interest owed), bank loan (higher interest owed), borrow from family/friend, ... TA retirement accounts. Your choice.
Last edited by dratkinson on Fri Nov 06, 2015 7:04 pm, edited 1 time in total.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.

JinroSoju
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Re: How to start investing with nothing

Post by JinroSoju » Fri Nov 06, 2015 4:56 pm

dratkinson wrote:
Grt2bOutdoors wrote:
dratkinson wrote:
53timr wrote:You could open a Vanguard account and invest in a Target Retirement Fund with a $1000 minimum. Use the fund that has an asset allocation closest to what your 3 fund portfolio would have. Keep dollar cost averaging into that account and when you have enough in the account, swap to your choice of index funds.
The beauty of an all-in-one fund is its simplicity: it takes care of itself, so nothing for you to manage after the purchase; just keep DCAing. So later/after growth, you can keep the single fund, instead of splitting it up to manage the separate pieces. Your choice.

Vanguard has two types, both with a $1K minimum: target date retirement funds (more conservative allocation as you age) and LifeStrategy funds (constant allocation). Your choice.


Welcome.
I think everyone missed the OP's post where he states "I can only afford to contribute $100/$150 per month". He doesn't have the $1K to open the all-in-one fund, I really don't get why everyone is talking about these funds, when clearly the OP in his own words has indicated he wants an option that only requires a minimum entry point of $100-$150 per month.
My bad, should have been more clear. I'm assuming his "Currently have 15k cash..." is fungible, so he can buy an all-in-one fund and pay himself back, while meeting his DCA target in future.
I was thinking the same thing; use the cash reserves to invest the minimum, then pay himself back over time. I also learned a new word, "fungible."

Topic Author
Joe1Joe
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Re: How to start investing with nothing

Post by Joe1Joe » Sat Nov 07, 2015 1:51 pm

Wow thank you everyone, Ive learned a great deal in the last 24 hours in this thread and on this site the last 2 days.I was not aware that money could be pulled from a roth IRA without a penalty (besides gains taxes in some cases). It does seem the a choice would be for me to use my cash reserves.

My new plan would be to invest part of my emergency fund into a roth IRA, something conservative like VBMFX- Total bond fund or as livesoft said the VTINX-Vanguard Retirement Income. I would invest the $5,500 soon or before Apr for 2015 contribution leaving room to invest more in 2016.

My question would be what is a safe % of your emergency fund to invest? I would do mostly bonds. I know now might be a volatile time with interest rates. I would want atleast 5k cash on hand

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Epsilon Delta
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Re: How to start investing with nothing

Post by Epsilon Delta » Sat Nov 07, 2015 2:41 pm

livesoft wrote:Have you thought about a Roth IRA as a holding place for your emergency fund?
https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

You might start a Roth and invest it conservatively, at least for your emergency fund bit, say a Vanguard Target Retirement Income fund.
Or even the myRA which you can now fund it by ACH transfers from your checking account. The G fund investment is essentially a high interest rate MM account.

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dratkinson
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Re: How to start investing with nothing

Post by dratkinson » Sat Nov 07, 2015 3:08 pm

Joe1Joe wrote:... I would invest the $5,500 [in IRA] soon or before Apr for 2015 contribution leaving room to invest more in 2016.

My question would be what is a safe % of your emergency fund to invest? I would do mostly bonds. I know now might be a volatile time with interest rates. I would want atleast 5k cash on hand
How much to invest. Invest the whole $5.5K. Why? That maximizes your IRA contribution for the year (leaving $9.5K, >half a year in your EF), and use your planned $100-150/mo to refill your EF. So it becomes "one and done" (IRA contribution)---no monthly contributions to worry about/watch. Repeat next year.


Interest rate volatility. We've been hearing about that since ~2008. Bond funds lose (interest-rate) value based on "duration". A 1% interest rate rise causes a "5-year duration" bond to lose ~5%, so a $10 NAV (share price) bond will drop to ~$9.50. However it's NAV will recover as the fund replaces old issues (lower yield) with new issues (higher yield). So a 50-cent loss that will recover in ~5 years. Not too bad. Predictable.

What do you do if a bond fund's NAV drops and you need more bonds? You buy more... on sale.

A 1% rise in interest rate would seem to be large/unexpected for current economic environment. It could happen, just is not expected.

When stocks crash, they can lose 50-90% of their value. (Lost ~40% in 2008.)

When bonds crash, they can lose 10-15% of their value.

Bottom line. Don't worry too much about (safe) bonds. So whenever you need bonds is a good time to buy bonds.


Search Wiki for "books". Read one on "bonds". Boring stuff, but necessary reading. Get book from local library, through inter-library loans, or buy it. (Forum would appreciate use of Amazon referral link.) Read Wiki topics on "bonds" while waiting for your book.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.

HurdyGurdy
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Re: How to start investing with nothing

Post by HurdyGurdy » Sat Nov 07, 2015 3:16 pm

Welcome Joe,

How are you investing in your 401k? What funds are available (with expense rates) and what are you invested in?

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