please help ignorant 40 year old

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JKD GUY
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please help ignorant 40 year old

Post by JKD GUY »

I have not been saving for retirement and yes, I’ve looked at compounding interest calculators and have vomited multiple times after seeing how much money I’ve lost out on already and my complete financial ignorance. You need to just meet me where I’m at today. I’ll be 40 in March, will be debt free and begin investing in January. I have no kids (not planning on having any), no wife, and do not own a home. I work in healthcare and will be doing contract work for the next ~5yrs or so. In that time I will net between 5,200-6,400 a month give or take just depending on the contracts over that period. After that time I’m considering laying down roots somewhere and buying a house outright with cash. My income will most likely drop to ~4500 net monthly give or take just depending on where I settle (possibly OK, AZ, TX).

My current employer’s 401k will match 4% of my 5% because the last 2% they’re only matching 50 cents to the dollar. The product is empower retirement offered by Great-West and the selection of indux funds are slim and not great with expense ratios that are high. There are about 6 I am considering to choose from and would appreciate your feedback. They tend to be more aggressive with the lowest expenses I could find. The funds have been around for a decade or longer, ER .60-1, and yields to date are between 7-9.8%. I can tolerate risk for the potential sake of gain to make up for lost time of investing. Do I choose the funds with the lowest operating expenses? I can list the 6 funds if necessary with yields, ratios, etc but didn’t for sake of space. Beyond my employer match I’ll be opening a Roth IRA through Vanguard. I’ve been considering their Life Strategy Growth Fund with an 80/20 stock/bond split. I also filled out their basic questionnaire and it recommended VTGSMX and VGTSX allocating 60%/40%, respectively.

Based on the aforementioned rough draft what would you do if you woke up in my shoes? I don’t really want to mess around with investments monthly. I would rather just set it and forget it instead of constantly checking on things and reallocating monies/percentages multiple times a year. What would be the most efficient way to invest moving forward?

Thanks in advance for your constructive feedback!
"Dishonest money dwindles away, but whoever gathers money little by little makes it grow" Proverbs 13:11
livesoft
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Re: please help ignorant 40 year old

Post by livesoft »

Here's what I would do:

I would go to bogleheads.org and click on the "Start Here" or "Getting Started" link. I would also post my current portfolio and the funds available in my 401(k) as shown in this "sticky" thread: "How to Ask Questions on Bogleheads about what I should do"

Then I would read the responses which will probably say something like: Invest $18K a year into my 401(k) in a Target Retirement fund and $5.5K a year into my Roth IRA in a Target Retirement fund.
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warowits
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Re: please help ignorant 40 year old

Post by warowits »

Those expense ratios aren't great but your employer match will more than offset that. Read the post above mine and resubmit your question in that format for the best advice. For now

1. Always invest enough to get the employer match
2. After that open an account on your own that has access to better funds for any money you save above and beyond the employer match. Vanguard etc.
3. You should save more than the 9% that you would be saving in the employer 401k.

Starting at 40 is late, but many of the things I am saving for (wife's retirement, kids college/weddings), you don't have, so you have an advantage there. The number that gets thrown around alot is a 15% savings rate. Starting at 40 you likely will want to save more, how much is up to you. The good news is the best day to start saving is today!
tampaite
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Re: please help ignorant 40 year old

Post by tampaite »

Deleting my messages on this forum
Last edited by tampaite on Mon Jun 03, 2019 9:29 am, edited 1 time in total.
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catdude
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Re: please help ignorant 40 year old

Post by catdude »

OP, I was in your shoes when I was 40 (I'm 61 now). I had virtually nothing saved for retirement. Don't get discouraged, you can do this! Just live modestly and save aggressively, and by time you're my age you'll be fine. As others have pointed out, since you don't have kids you've got a big advantage in the savings race. Try to save 30-35% of your income... that's what I did and I'm really thankful that I did so.
catdude | | "I yield to the gentleman for a few feeble remarks." (Congressman Thaddeus Stevens)
mhalley
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Re: please help ignorant 40 year old

Post by mhalley »

I was listening to a financial podcast recently ( sorry can't recall which one) and the 'caster stated that a good way for someone getting started late for retirement is to take some lessons from the early retirement community (mr money mustache, etc). Take this post regarding the savings rate vs years to retirement as a starting point.

http://www.mrmoneymustache.com/2012/01/ ... etirement/

So according to MMM assumptions, a 32% savings rate would allow retirement in 25yrs.
rattlenap
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Re: please help ignorant 40 year old

Post by rattlenap »

First, let me stay that you're not alone here my friend. I am an ignorant 40 year old myself. However, I've come to the realization that I still have time to invest for retirement. 40 is starting at the last possible moment that you can do it with some level of certainty, however. For myself, I just have to invest 30-35% of my yearly income from here on out. It takes about 15 years or so to build a good portfolio. Going forward it is doable just so long as you invest as much as you can. Good luck!
synpacket
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Re: please help ignorant 40 year old

Post by synpacket »

Its not too late! Save hard, 50% if you can. Life strategy in Roth and 401k is great, can't get any easier. Good luck!
conniebird
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Re: please help ignorant 40 year old

Post by conniebird »

You're not ignorant! I started out very late too - at 38 so not that far from you. Unlike you I will get married and likely have kids. I've made a plan and will be able to retire in 20ish years or at least go part time. So definitely can be done!

I max out 403b, 457b and get a generous company match for the 403b. Roth IRA and starting next year will do a taxable account. Future spouse has some money saved up already so that helps but he will also be maxing out his retirement accounts as well. We are relatively frugal compared to our peers but still enjoy life. I'm more aggressive than most bogeleheads with 93% in equities. Good luck!!
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BL
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Re: please help ignorant 40 year old

Post by BL »

Good job getting started! But start now.

List the 6 index funds with names, tickers, and ERs.

It is worth delaying the extra loan paybacks just a bit to get your match and Roth done this year and try to get the 401k up to 18k this year. Sign up immediately with your best guess (S&P500 type, for example) and then change if necessary after consulting here.

Then you are on your way!

There is lots of good reading here and in the Wiki. How about a quick pdf to get you on the right track:
https://www.etf.com/docs/IfYouCan.pdf
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JKD GUY
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Re: please help ignorant 40 year old

Post by JKD GUY »

Just to recap my OP:

Nearing 40, no kids/wife, don't own a home, employer matches 4% of my 5%, net 5-6k monthly, 30K student loans, 22K savings/emergency fund, and 0% saved for retirement! Now I that I'm turning my financial life around I am adverse to debt. One question I have is should I pay off loan ASAP or split between investing now and paying off loan?

My choices for passive funds through work are not great but I'm considering something from below with ER and ticker. They are the lowest ERs I could find that invest fairly aggressive. What allocation and which ones might you recommend?

Great-West S&P small cap 600 Index fund, 0.60%, MXISX
Great-West S&P 500 index fund, 0.60%, MXVIX
Invesco Comstock A, 0.82%, ACSTX
JP Morgan disciplined equity A, 0.85%, JDEAX
T. Rowe Price growth stock adv, 0.95%, TRSAX
T. Rowe price blue chip growth adv, 1.00%, PABGX

I plan on opening a roth through Vanguard:
Life Strategy Growth Fund, 0.16%, VASGX or would a target date fund be better?
Vanguard total Stock Market Index Fund, 0.16%, VTSMX

Is it ok to invest aggressively for a while? Is 30% of my net enough to invest or should it be more like 40%?

Thanks for the feedback!
"Dishonest money dwindles away, but whoever gathers money little by little makes it grow" Proverbs 13:11
selters
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Re: please help ignorant 40 year old

Post by selters »

Great-West S&P 500 index fund, 0.60%, MXVIX is the one to use. For an S&P index fund, 0.60% is probably the highest expense ratio in the industry. If you google "Great-West S&P 500 index fund," you'll find a couple of articles that say it is the Worst Mutual Fund in the World, but don't worry about that. It may be the worst S&P 500 index fund in the country, but still it is not bad at all compared to most actively managed funds.

Is Great-West S&P Mid Cap 400 available? If so, then you can combine the three index funds to replicate the S&P COMPOSITE 1500 index.

The S&P Composite 1500® combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the U.S. market capitalization. It is designed for investors seeking to replicate the performance of the U.S. equity market[.]

Your allocation percentages would be 83% S&P 500, 11% S&P Mid Cap 400, 6% S&P Small Cap 600.

If not, then I would not bother with mid and small caps in your 401k. I'd go 100% Great-West S&P 500 index fund, at least for the stock portion of the 401k.

What are the cheapest bond or fixed income funds in available in your 401k? Are there any stable value funds there? It would be useful for us if you posted those as well. If none of them are worthwhile, you can put all your bonds the the IRA.
Topic Author
JKD GUY
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Re: please help ignorant 40 year old

Post by JKD GUY »

The best conservative funds I could see were as follows:

Great-West conservative profile II fund I, 0.83%, MXCPX
Great-West Mod conservative profile II fund I, 0.88%, MXDPX
American Funds American Balanced R3, 0.94%, RNPCX
Black Rock High Yield Bond INVA, 0.97%, BHYAX
Great-WEST US Govt mortgage secur fund, 0.60%, MXLMX
Metropolitan West total Re Bd Admin CL, 0.86%, MWTNX
Nuveen inflation protect securities A, 0.83%, FAIPX
PIMCO total return A, 0.86%, PITX
Putnam income A, 0.86%, PINCX

If I were to put 80% in Great-West S&P 500 index fund and 20% from one of the above, would that be an ok allocation?
"Dishonest money dwindles away, but whoever gathers money little by little makes it grow" Proverbs 13:11
synpacket
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Re: please help ignorant 40 year old

Post by synpacket »

With those ER's I might go full s&p 500 in the 401k and keep the bonds in the Roth. With yields so low, maybe even taxable. If you can save 40%, well, that's better than 30 :happy
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aj76er
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Re: please help ignorant 40 year old

Post by aj76er »

For the bond portion of the portfolio, I would go with

PIMCO total return A, 0.86%, PITX

Of the funds you listed, it has the profile that closely approximates total bond market.

I agree with others that it is a shame that the fees are so high. You may want to see if there is a"brokerage link" option which would allow you to at least buy funds or ETFs of other companies. If this is the case you could look at picking up BND, which is vanguards total market fund.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
dolphintraveler
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Re: please help ignorant 40 year old

Post by dolphintraveler »

If you can slow the pace of the loan payback and focus on getting the match in your 401k and what space space you can in the Roth IRA for tax year 2016. Once those tax preferential spaces are gone you can't get them back, and the match almost doubles your money instantly. The IfYouCan PDF and Bogleheads starting place are great places to start as mentioned by BL and livesoft.
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