I'm having a freak-out moment (portfolio question)

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macandal
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I'm having a freak-out moment (portfolio question)

Post by macandal » Fri May 19, 2017 8:26 pm

Okay, I hope I'm doing this right. If I miss anything, just ask and I'll do my best to get the missing info for you.

I'm about to turn 50 and freaked out for a moment. I'm thinking, I'm not doing this right and I need to fix it to see if I can still save myself.

Basics:
Emergency funds: Just started, so there's basically nothing there. Ok, $200. I'll be depositing $200 every month until I have somewhere close to $20,000 saved in a money market account.
Debt: About $2500 in credit card debt. I'm paying $200/month until paid. Not sure of the interest rate. Assume it's high. I also own 1/3 of a house. My share of the debt is about $220,000 with the interest hovering around 3%.
Tax Filing Status: Single.
Tax Rate: 25% Federal, 9.3% State
State of Residence: California
Age: 49 (50 in September)
Desired Asset allocation: 100% stocks (that's what I have right now)
Desired International allocation: whatever, shoot. Should I have international investments?

Retirement Assets:
I will receive a pension when I retire. By the time I retire, I expect to receive 75% of my highest paid 3 years.

Other than that pension, my job offers a 457(b) plan. It doesn't have a lot of options, but there are some good ones I hope. Regardless, it is what it is. This is what I have to work with. I've been maxing my plan out for years and there is no company match. Beginning this year, I am contributing $24,000/yr to this plan.

As of today, I have $461,114.99 saved, broken down as follows:
FCNTX (0.68%) = $91,803.31
VFTNX (0.12%) = $159,286.76
MSUSX (0.98%) = $210,024.92

The other funds available in my plan are:
  • A bunch of targeted funds and 3 other investments which are extremely low risk but, as you may have guessed, with extremely low returns. Basically, savings accounts.
  • LSV Conservative Value Equity Fund (LSVVX) (0.35%)
  • Vanguard Institutional Index (VIIIX) (0.02%)
  • Large Cap Growth Equity Portfolio (“fund of funds”) (PRUFX)+(VIGIX) (Combined ER: 0.30%)
  • Fidelity Low-Priced Stock K (FLPKX) (0.78%)
  • Vanguard Small Cap Value Index I (VSGIX) (0.06%)
  • Small Cap Core Equity Portfolio (“fund of funds”) (VSGIX)+(VSIIX) (Combined ER: 0.07%)
  • Vanguard Small Cap Growth Index I (VSGIX) (0.06%)
  • American Funds Europacific Growth R6 (RERGX) (0.50%)
Investment Assets: (taxable)

I didn't know what else to call this. Let me explain why I set this up. I live in San Francisco. Houses are very expensive here. The median price of a home here (~2BD/1BA, $700,000) would buy you a mansion somewhere else. That said, I want to live here. This is where I went to school, college, this is where I work ... you get the idea. So, early on I decided that if I was to buy a house here, I wasn't going to buy it by saving money (i.e., putting money in a savings account), my best bet would be to invest money. So, I opened an account with Capital One ("Sharebuilder" when I opened it) and I started contributing about $200 every month.

As of today, I have $147,328.87 saved, broken down as follows:

Active stocks (i.e., I'm still buying these on a monthly basis, $200/month total--NOT PER STOCK!!)
  • AAPL = $84,319.42
  • AFL = $16,590.18
  • PAYX = $20,379.92
  • WFC = $19,694.01
All dividends are reinvested in the stock that earned it.

Passive stocks (i.e., I am no longer buying these on a monthly basis, but they keep earning dividends which are reinvested in the same stock)
  • CSCO = $2,968.04
  • WBA = $3,475.90
Beginning next month, June, I am going to increase the amount that I will invest in this account. I am going to add $300 more every month for a total of $500 monthly. I don't know if you care to know or I should say which stocks I'm thinking about adding, but here goes anyway:
  • AMZN
    AXP
    COST
    DE
    PG
    SIEGY
I could add all 6 of these stocks or just a few, I haven't decided yet.



The reason for my freak out? I just read some articles about people younger than me having $1,000,000 or more in retirement accounts and my realizing that I'm nowhere near close to that number.
  • Basically I just want to know if my financial situation is fine or if there is anything I could do to improve it. I just want to know the general health of my finances.
  • How much money does someone my age should have in his retirement account?
  • After all this, I still have $200/month left which I am thinking of putting into a money market account.
  • In general, is there anything you would recommend I do based on what I have now and what I may be missing?
Thank you.

(Ok, I don't think I missed anything, did I? If I did, let me know and I'll do my best to get that, whatever it is , for you.)

aristotelian
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Re: I'm having a freak-out moment (portfolio question)

Post by aristotelian » Fri May 19, 2017 8:45 pm

First of all, you have a pension. You will very likely be OK on 75% of your income plus social security. If your income is $70K, that means it will provide over $50K, which would mean that your pension will represent about $1.5M of savings at retirement time. So I think you are both "fine" in absolute terms as well as relative to peers who have $1M or so saved at age 50.

That said, you have quite a lot invested in individual stocks. I think it makes sense to be aggressive with the rest of your portfolio (some people consider pension to in effect serve as their bond allocation), but putting so much in a few stocks might be going too far. AAPL is doing fine now, but how did you feel when it was down? Might be a good time to diversify.

Consider going with 100% Vanguard Institutional Index in your employer plan. Can't beat that expense ratio. Just own the S&P and simplify. Not sure what your thinking is with Contrafund, but I would get rid of it.

There is no reason you should have credit card debt when you have non-tax-advantaged assets. Cash in a couple shares of AAPL and get rid of that debt!

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knpstr
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Re: I'm having a freak-out moment (portfolio question)

Post by knpstr » Fri May 19, 2017 8:50 pm

You seem to be doing better than average.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

wolf359
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Re: I'm having a freak-out moment (portfolio question)

Post by wolf359 » Fri May 19, 2017 8:51 pm

The people who feel compelled to save a million dollars or more also have no pension. Your pension alone is worth what it would cost to buy an immediate annuity at the appropriate income level. (You'll have to price that one yourself, since you don't provide sufficient information. Try a site like http://www.immediateannuities.com)

Add that pension value to your current taxable account value, and add social security, and you're doing just fine.

I'm your age. I wish I had your pension. I don't, so I'm saving like crazy.

finite_difference
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Re: I'm having a freak-out moment (portfolio question)

Post by finite_difference » Fri May 19, 2017 8:54 pm

1. You are very luck that you found this place. Take some time to read the wiki and the replies you get here.
2. It sounds like you have a gold-plated pension. 75% of high3? That's insane. Is it COLA? So before you compare to others, you need to factor in how much it would cost to purchase an SPIA to equal your pension.
3. You can stop freaking out now. :)
4. What matters is expenses in retirement. If your pension covers 100% of your retirement expenses (including taxes and medical) then you don't need to rely on your retirement accounts much if any.
5. Buying individual stocks is incredibly risky. It would be a much better idea to buy low cost mutual funds. For example Vanguard Total Stock Market and Vanguard Total Bond. I recommend Taylor Larimore's 3-fund portfolio. But keep reading this site and formulate a strategy that you understand and will follow before making any major changes. If the strategy is exceedingly simple and boring then you are doing it right.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

chinto
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Re: I'm having a freak-out moment (portfolio question)

Post by chinto » Fri May 19, 2017 8:58 pm

I am not sure I understand your issue. Is it that you think you should be troubled by people whom you do not know and whom likely live dramatically different lives have different financial situations? If that is the case that is more of a psychological thing than a financial issue.

It sounds like you are some sort of Government employee with the pension and the additional mention of a 457 plan(although you still can have a 457 and not be a Govie.). You are single and it sounds like you have no particular reason to leave anything to anyone.

Here is a simple way to look at this. It sounds like you can pension spike, so all you have to do is concentrate on spiking your last 3 years to get your pension to whatever is your comfort level. I am guessing you get an inflation adjustment, so inflation is a moot point.

Really you won the game You know at retirement are going to be at 75% of you top 3 years of salary and for most Government employees (that is what I am assuming) it is easy to trivial to pension spike that figure.

Another way is simply to constrain your now lifestyle so you will be comfortable at 75% of salary in retirement.

If you want to feel better you can price an immediate annuity that approximates(I say approximates as you likely have an inflation kicker that you cannot obtain via an annuity) what your retirement benefit will be in present dollars so you can use that as proxy for what other have saved.

I read your post several times and it really looks likes you have invented a problem for yourself that does not really have a reason to exist. Single people with a retirement income source that adjusts for inflation and that they cannot outlive have very little need for robust savings and investment. An emergency fund should suffice. Then enjoy life (I built several assumptions into my reply so they may, in the end, not be relevant).

Regards....
Last edited by chinto on Fri May 19, 2017 9:02 pm, edited 1 time in total.

bloom2708
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Re: I'm having a freak-out moment (portfolio question)

Post by bloom2708 » Fri May 19, 2017 8:58 pm

Help me with two things. You have a good pension in the future and a good amount of stocks/stock funds.

Why no Emergency Fund? Your $200/month plan will take 8.33 years to get to $20k.

Why can't you pay the credit card bill? Sell some taxable and pay it off.

On one hand you are OK. On the other, this site and the advice can help you a lot, if you take the advice and ideas to heart. Good luck!
Last edited by bloom2708 on Fri May 19, 2017 8:58 pm, edited 1 time in total.
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Rwsavory
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Re: I'm having a freak-out moment (portfolio question)

Post by Rwsavory » Fri May 19, 2017 8:58 pm

Very few people have assets of $1 million or more, let alone folks younger than 50. I read somewhere that the average savings of a 50-year old American is roughly $100,000. You have what appears to be a nice pension plan, a sizable retirement account, and the ability to add additional gross retirement savings over the next 10 years of $240,000. I would say keep up the good work!

You probably should avoid investing in individual stocks in any significant amount. That's just going to increase your level of anxiety.

billthecat
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Re: I'm having a freak-out moment (portfolio question)

Post by billthecat » Fri May 19, 2017 9:03 pm

I should have had jobs with pensions.

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Watty
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Re: I'm having a freak-out moment (portfolio question)

Post by Watty » Fri May 19, 2017 9:05 pm

A couple do things that are missing are what your expenses are, when the mortgage will be paid off, is the pension indexed for inflation, and if you will get Social Social Security and if so how much that will be at various ages.

There is a getting started wiki if you have not seen it.

https://www.bogleheads.org/wiki/Getting_started

The Boglehead books are very readable too.

https://www.amazon.com/s/?search-alias= ... Bogleheads

You are likely asking about stocks at the wrong place since a big part of the Bogleheads philosophy is about using low cost index funds instead of individual stocks.

https://www.bogleheads.org/wiki/Boglehe ... philosophy

If you do invest in individual stocks then it is often recommended to not have more than 5% of your portfolio in an individual company. Just eyeballing the numbers it looks like you have somewhere around 15% of your investment in the Apple stock you own directly and the mutual funds that you own may also own Apple stock which would make the percentage even higher.

I would strongly suggest not reinvesting the dividends in the taxable account and not buying any more stocks in the taxable account until you have the credit cards paid off and have at least a modest emergency fund.

There isn't enough information to recommend it but since you have money in taxable accounts having a three fund portfolio with low cost index funds would be a pretty common recommendation.

https://www.bogleheads.org/wiki/Three-fund_portfolio

retire57
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Re: I'm having a freak-out moment (portfolio question)

Post by retire57 » Fri May 19, 2017 9:16 pm

The only thing you should be freaking out about is not having an emergency fund.

NightFall
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Re: I'm having a freak-out moment (portfolio question)

Post by NightFall » Fri May 19, 2017 9:31 pm

retire57 wrote:The only thing you should be freaking out about is not having an emergency fund.
and paying only $200/month to a $2500 credit card bill. :shock: Seriously, get rid of this debt as quick as you can assuming the interest rate is anywhere close to normal credit card interest rates.

Grt2bOutdoors
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Re: I'm having a freak-out moment (portfolio question)

Post by Grt2bOutdoors » Fri May 19, 2017 9:33 pm

billthecat wrote:I should have had jobs with pensions.
I did, then employer changed the rules and froze plan. Bottom line, don't trust nobody, save as if it never existed. That is what I did, when they froze plan it was no surprise, I can't say the same for my colleagues.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Tamarind
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Re: I'm having a freak-out moment (portfolio question)

Post by Tamarind » Fri May 19, 2017 10:50 pm

NightFall wrote:
retire57 wrote:The only thing you should be freaking out about is not having an emergency fund.
and paying only $200/month to a $2500 credit card bill. :shock: Seriously, get rid of this debt as quick as you can assuming the interest rate is anywhere close to normal credit card interest rates.
Yes, this. Pay off the CC debt and fund a 3-month emergency fund from your taxable account right now! No excuses!

About the house... You say you own 1/3 of a house but that you are using your taxable to invest towards a house. Don't you already have a house since you have a mortgage? If for some reason you can't live in the house you are paying for, are you quite sure you want to buy? In an area like that renting seems a much better deal to me.

I concur you should put your 457 account all in VIIIX. I would not recommend keeping the individual stocks. If you turn this taxable account to retirement rather than accessing more housing debt you could probably retire comfortably as a renter the moment you satisfied the criteria to access your pension. If you decided to do that you could use this money (at Vanguard or Fidelity or Schwab) to balance out the big lump of S&P with mutual funds for extended market, international, and bonds as appropriate. You clearly have had good risk tolerance so maybe not too much in bonds needed.

Nate79
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Re: I'm having a freak-out moment (portfolio question)

Post by Nate79 » Fri May 19, 2017 11:47 pm

1. Pay off the credit card debt asap.
2. Build 6 months expenses emergency fund asap
3. Stop investing in random stocks. You have significant single company stock risk. I would slowly sell all of your single stocks and buy a typical index fund. The last thing I would do is put more money in any of these single stocks.

pkcrafter
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Re: I'm having a freak-out moment (portfolio question)

Post by pkcrafter » Fri May 19, 2017 11:53 pm

macandal wrote:
I didn't know what else to call this. Let me explain why I set this up. I live in San Francisco. Houses are very expensive here. The median price of a home here (~2BD/1BA, $700,000) would buy you a mansion somewhere else. That said, I want to live here. This is where I went to school, college, this is where I work ... you get the idea. So, early on I decided that if I was to buy a house here, I wasn't going to buy it by saving money (i.e., putting money in a savings account), my best bet would be to invest money. So, I opened an account with Capital One ("Sharebuilder" when I opened it) and I started contributing about $200 every month.

As of today, I have $147,328.87 saved, broken down as follows:

Active stocks (i.e., I'm still buying these on a monthly basis, $200/month total--NOT PER STOCK!!)

AAPL = $84,319.42
AFL = $16,590.18
PAYX = $20,379.92
WFC = $19,694.01
When do you plan to buy this house? If anytime in the next 10 years, you are taking a big risk with all equity.
About $2500 in credit card debt. I'm paying $200/month until paid. Not sure of the interest rate. Assume it's high.
Oh, it's high. If you are still using the card, I don't think you can pay it off any time soon with $200/month.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Lafder
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Re: I'm having a freak-out moment (portfolio question)

Post by Lafder » Sat May 20, 2017 12:05 am

What makes me freak out about your holdings is that you are 100% in stocks, and a focused number of individual stocks.

I rec a minimum of 20% bonds. They buffer drops much more than they drag down gains, and they give you rebalancing space in a big stock market crash. Keep in mind a 50% drop in the stock market requires a 100% gain to get back to where it started. Play with the numbers and look at the historical returns of different % bond AA.

As far as International, 0-50% is fine and can be argued for.

As far as your stock picking, you are more likely to perform as well as the market if you have more holdings than your picks. The problem with a handful of holdings is the risk of a drop in value.

You have vastly more than the average American of any age. Keep saving what you can and try not to compare. Some folks you know and think have more money may actually have less savings than you and just spend more :)

lafder

inbox788
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Re: I'm having a freak-out moment (portfolio question)

Post by inbox788 » Sat May 20, 2017 12:17 am

macandal wrote:As of today, I have $461,114.99 saved, broken down as follows:
FCNTX (0.68%) = $91,803.31
VFTNX (0.12%) = $159,286.76
MSUSX (0.98%) = $210,024.92

The other funds available in my plan are:

[*]Vanguard Institutional Index (VIIIX) (0.02%)
[*]Vanguard Small Cap Value Index I (VSGIX) (0.06%)
[/b]
I would put 100% into (VIIIX) (0.02%) or maybe 70/30 or 80/20 in VIIIX/(VSGIX) (0.06%) for a small cap value tilt. Not a fan of the individual stocks and they add complications, but if you're really going to do it, do it with some conviction and concentrate (i.e. shoot for the moon). Which of your dozen stocks do you have the most confidence in? which the least? Dump the least and put it in the most. Repeat until you have about half left. How many of your pics beat VOO last few years?

Don't worry, you're doing ok for now. That's why there's catch up contributions and looks like you're using that. Diversify into low cost index funds and spend less time worrying and maybe more time working overtime or on that promotion or just enjoying life.

bayview
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Re: I'm having a freak-out moment (portfolio question)

Post by bayview » Sat May 20, 2017 11:56 am

macandal wrote:...The reason for my freak out? I just read some articles about people younger than me having $1,000,000 or more in retirement accounts and my realizing that I'm nowhere near close to that number...
You're reading click-bait. Stop doing that. :D The financial media and the finance industry benefit by getting people OMG-ing. I'm five years out from retirement, and you're doing better than me. (Former Bay Area, now MCOL area; anticipating SS and small federal pension)

Agree with the others. If you have to save some small portion of your individual stocks, fine. That's your "play money", which should be ~5% of your portfolio. Put the rest in index funds. If you want to do international, consider 20-30%, or ignore the whole issue until you get comfortable with indexing in general. Got some bonds going, not so much for income but as ballast when (not if) the stock market tanks again. Many use total bond; I use intermediate Treasuries.

By the way, once you start indexing, you'll still have plenty of AAPL and friends. Here are the top ten companies in VTSAX, Vanguard's Total (US) Stock Market Index fund, per the VTSAX page:

(16.4% of total net assets) as of 04/30/2017
1 Apple Inc.
2 Alphabet Inc.
3 Microsoft Corp.
4 Amazon.com Inc.
5 Facebook Inc.
6 Exxon Mobil Corp.
7 Johnson & Johnson
8 Berkshire Hathaway Inc.
9 JPMorgan Chase & Co.
10 General Electric Co.

This concentration of stocks actually makes me nervous enough that we have some mid-cap index in addition to total US, as I'm not happy having over 16% of my US equity investment in just 10 stocks. I would be a complete basket case if all I had were your individual stocks, including the additional ones you're contemplating.

edit to add: and oh yeah, pay off the credit card debt immediately and don't ever do that again. :shock:
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

TropikThunder
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Re: I'm having a freak-out moment (portfolio question)

Post by TropikThunder » Sat May 20, 2017 1:20 pm

chinto wrote: Another way is simply to constrain your now lifestyle so you will be comfortable at 75% of salary in retirement.
He's basically already constraining his lifestyle, considering that he's putting $24,000 a year into the 457. That should make being able to "survive" on 75% as a pension quite doable.

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Watty
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Re: I'm having a freak-out moment (portfolio question)

Post by Watty » Sat May 20, 2017 1:29 pm

One more comment.

You are only 20 years from being 70 and at some point buying and selling individual stocks may be difficult or impossible for you as you age.

You really need to start transitioning to simpler portfolios long before you reached that point. Most of my retirement funds are in retirement accounts where taxes are not an issue so when I retired I just put almost all of it into low cost target date retirement accounts. In addition to being a good choice in retirement accounts the target date funds will be much easier to manage as I age or if my wife who knows less about investing has to manage the account some day.

Being single you have an additional challenge in that you will need to figure out how your funds should be managed if you are in a nursing home or something and cannot do it for yourself. Having it on automatic pilot as much as possible would really help in this situation. There are so called "financial advisors" who would gladely manage your account for you but they would legally rip you off big time.

There is a saying, "When you have found that you have dug yourself in a hole, the first thing to do is to stop digging" . It would be good stop buying more individual stocks and reinvesting the dividends.

The market is at an all time high so it is easy to think that you are a lot better at stock picking than you really are.
Last edited by Watty on Sat May 20, 2017 4:24 pm, edited 1 time in total.

Dottie57
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Re: I'm having a freak-out moment (portfolio question)

Post by Dottie57 » Sat May 20, 2017 1:35 pm

wolf359 wrote:The people who feel compelled to save a million dollars or more also have no pension. Your pension alone is worth what it would cost to buy an immediate annuity at the appropriate income level. (You'll have to price that one yourself, since you don't provide sufficient information. Try a site like http://www.immediateannuities.com)

Add that pension value to your current taxable account value, and add social security, and you're doing just fine.

I'm your age. I wish I had your pension. I don't, so I'm saving like crazy.
+1. No pension here. So to meet expenses I need more than you.

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Re: I'm having a freak-out moment (portfolio question)

Post by Mudpuppy » Sat May 20, 2017 1:58 pm

macandal wrote:I will receive a pension when I retire. By the time I retire, I expect to receive 75% of my highest paid 3 years.
Which pension plan is this? It doesn't sound right for CalPERS or CalSTRS, so I'm hoping it's a local (district, county, city, etc.) pension plan. Otherwise, you may have misread something, which should be addressed now so you fully understand what pension you will be receiving.

For example, this doesn't quite sound right for a CalPERS plan, because you'd need at least 30 years of service to hit 75% under CalPERS 2% plans and you can only max out at 50% on CalPERS 1.x% plans. But to hit 30 years of service given your current age and a standard retirement age, then you'd be a "classic" CalPERS member (hired before 2013) and CalPERS would use either the salary in your last year of service or the highest year of salary in your last three years of service for the pension calculations.
macandal wrote:Other than that pension, my job offers a 457(b) plan. It doesn't have a lot of options, but there are some good ones I hope. Regardless, it is what it is. This is what I have to work with. I've been maxing my plan out for years and there is no company match. Beginning this year, I am contributing $24,000/yr to this plan.
As others have said, VIIX is your best bet in the 457(b) plan. If you want more of the market than just S&P 500, you could go 85-90% VIIX and 10-15% "Small Cap Core Equity" (the blend of VSGIX and VSIIX) to get a small cap tilt.
macandal wrote:Investment Assets: (taxable)
Others have already pointed out the issues with investing too much in individual stocks. This is a very valid concern to have. I'd take their advice under serious consideration.

marcopolo
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Re: I'm having a freak-out moment (portfolio question)

Post by marcopolo » Sat May 20, 2017 2:48 pm

macandal wrote: I'm about to turn 50 and freaked out for a moment. I'm thinking, I'm not doing this right and I need to fix it to see if I can still save myself.
....

I will receive a pension when I retire. By the time I retire, I expect to receive 75% of my highest paid 3 years.
Relax. With that pension, most everything else is probably gravy. Is the Pension COLA'd? If not you will need your portfolio to fight against inflation, plus close any gap between 75% and your expenses. But unless you ratchet up lifestyle in retirement, that gap should be small since you are no longer saving, and a lot of the taxes go away.

A lot of the big target numbers you read here are for people who have no little or no pension. For example, my wife and I will get a whopping $500/month combined (no COLA) from previous jobs.
Once in a while you get shown the light, in the strangest of places if you look at it right.

chinto
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Re: I'm having a freak-out moment (portfolio question)

Post by chinto » Sat May 20, 2017 3:46 pm

Watty wrote:One more comment.

You are only 20 years from being 70 and at some point buying and selling individual stocks may be difficult or impossible for you as you age.

You really need to start transitioning to simpler portfolios long before you reached that point.
Awesome comment. I have been on the simplification path for some time now, for this vary reason. It doesn't not appear that a bell sounds to announce the diminishment of your mental faculties.

I have seen it with my elderly family members. They slowly decline and there is a point where they cannot any longer make rational decisions, as sad as that is. I talked to several eldercare, elderlaw, and elderplanners and based on their experience it just sneaks up on people at different stages of life and is not predicable.

It is, apparently, a sad reality for many.

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