47 and clueless - direction needed

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chattyanne
Posts: 24
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Sun Jul 01, 2018 6:57 am

No need to respond.

The more posts and portfolio information I read it seems many of us ask similar questions and the answers are much the same. Total Stocks, Intl Stocks, Bonds. I just need to hone my AA, trust all of the guidance, and move forward with investments and continue learning. Thank you all for steering me in the right direction.

dstac
Posts: 60
Joined: Sun Jun 02, 2013 5:12 pm

Re: 47 and clueless - direction needed

Post by dstac » Sun Jul 01, 2018 10:34 am

Anne-

Just want you to know how much I appreciate this thread. Your willingness to be vulnerable and interest in learning AND taking action is great. I also appreciate that you are an example of how to put all the pieces together without a 6 figure income.

You are right, figure out your current risk tolerance, then keep it simply. Specific funds can come once you have a sense of risk.

The way I see your situation you are actually in pretty good shape: paid off home, 9mos in emergency fund, an inflation adjusted annuity (SS) that covers 100% of living expenses and some, almost 3 more years of living expenses in retirement savings, a mission to more, & (critically) contentment with your possessions and not a need for more stuff.

Congratulations!

User avatar
dratkinson
Posts: 4383
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: 47 and clueless - direction needed

Post by dratkinson » Sun Jul 01, 2018 1:40 pm

chattyanne wrote:
Sat Jun 30, 2018 9:56 pm
...

To update:
1. I have done an "in kind" transfer w/ both of the funds I had, FBLAX (Franklin Balanced Fund Class A) and FKINX (Franklin Income Fund Class A)
2. Within that transfer time the price of them dropped a bit (of course) and I really wanted to "time" the market but from ALL of my reading I sucked it up and hit the sell button for both on Friday.
3. I have now $40,789.51 to direct toward my future.

...

Age 47
Income approx. 33k
Annual living expense 14k (1200 mth)
Fed tax rate 12%
Indiana tax rate 3.23%
EF 10k
Local savings covers Insurance, Prop tax, vehicle registration
Home paid for, no debt
Annual retirement 6k

To clarify my understanding of your current position...

Principal - $40,789.51 (Vanguard traditional IRA <--F-T tIRA <-- old 401k)
1. $3k conversion to Roth IRA (realizing I will be taxed) - VASGX LifeStrategy Growth Fund 79.9% Total Stock & Total International / 20.1% Total Bond II & Total International Bond
2. $10k IRA VTSAX Total Stock Market Admiral

Giving you currently:

Account: rIRA (Roth IRA)
--$3K, VASGX (LifeStrategy Growth, 80/20 allocation)

Account: tIRA (traditional IRA)
--$10K, VTSAX (Total Stock Market Index, 100/0 allocation)
--$27,789 in your cash settlement fund

Is this correct?


...and I'm stuck finishing up the IRA.

I have really leaned toward VMAX Mid-cap value Index Admiral but my gut says that make me too heavy in stocks.
Contemplated VEIPX Equity Income Fund Lg. Value .26% exp
Compared many Growth, Growth & Income, Value funds and have scribbles to show forth. :annoyed
I've read up on bond and International and I just don't have the understanding or experience but I realize many have these included in their portfolios. I seriously don't know how to direct the rest of the money. I don't believe I could afford the taxes to convert more to Roth at this point.

Internally I struggle with the feeling of lost time so I dangerously (emotionally) want to lean toward major risk to make up time and also knowing the market is high and has ran a long decent track and I'm stepping in late. I just need level headed guidance and I desire simplicity.

You can use other than the recommended total market* investment if you know a certain market sector** (individual stocks, mid cap index fund, energy fund,…) will outperform over the long run. If not, then not.

* The 3-fund portfolio invests in the total market, and uses enough bonds to temper our risk exposure.

** We are allowed to make market sector bets with our play money (5% of our total investments). Why? So we can scratch the itch to be “doing something”. Simple action step: stop playing if you lose this money.

Simple action step. If when you look into a mirror, you see Warren Buffett looking back at you, then you can invest in anything you want. If not, then it’s recommended to stick with total market index funds until we are more experienced and have enough money to lose playing. :)



A first look at coming up with simple IRA (both) solutions. Which funds to use?

Suggestion…

Account: rIRA (Roth IRA)
--$3K, VASGX (LifeStrategy Growth, 80/20 allocation)

Account: tIRA (traditional IRA)
--$37,789, VASGX (LifeStrategy Growth, 80/20 allocation)

Why? Simplicity. If VASGX is appropriate in an IRA (or 401k,...), then it's appropriate for all.


A second look at your IRAs. How aggressive should you be?

We are advised to use the 3-funds (all-in-one funds do this for us) and have less bonds to take more risk (be more aggressive), and more bonds to take less risk (be more conservative).

Rules of thumb.
--Conservative AA (asset allocation): Have your age in bonds. Suggests 47% bonds is appropriate for you.
--Aggressive AA: Have your age-10 in bonds. Suggests 37% bonds.

VASGX, at 80/20, would be considered to be maybe too aggressive* for your age. Instead maybe consider the LS (LifeStrategy) fund that is 60/40 as being more appropriate.

* If you have multiple secure sources of income going into retirement, so you don’t need to worry about a multi-year market correction, then being too aggressive (the total AA of your 401k+IRA+taxable) is okay.


Fund(s) selection, AA? Your choice.


Bottom line.
--Your IRA solution could be as simple as using only one fund for both (rIRA+tIRA).
--If you want to use multiple funds, then it's suggested we put the more risky fund (100/0) in our rIRA. Why? For the expectation* of more tax-free growth until withdrawn. (* Expectation, yes; guarantee, no.)



Plan B. Add this to your planning under “additional sources of income”.
--With your paid off house, you could get a reverse mortgage.

My neighbors used a reverse mortgage like a HELOC (home equity line of credit, with tIRA RMDs + SS) and withdrew only as much money as needed each month to make ends meet. The reverse mortgage was paid off when the estate was settled.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

chattyanne
Posts: 24
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Sun Jul 01, 2018 3:30 pm

dstac wrote:
Sun Jul 01, 2018 10:34 am
Anne-

Just want you to know how much I appreciate this thread. Your willingness to be vulnerable and interest in learning AND taking action is great. I also appreciate that you are an example of how to put all the pieces together without a 6 figure income.

You are right, figure out your current risk tolerance, then keep it simply. Specific funds can come once you have a sense of risk.

The way I see your situation you are actually in pretty good shape: paid off home, 9mos in emergency fund, an inflation adjusted annuity (SS) that covers 100% of living expenses and some, almost 3 more years of living expenses in retirement savings, a mission to more, & (critically) contentment with your possessions and not a need for more stuff.

Congratulations!
Thank you for that. The encouragement is more helpful than you know! :happy

chattyanne
Posts: 24
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Sun Jul 01, 2018 4:42 pm

dratkinson wrote:
Sun Jul 01, 2018 1:40 pm
chattyanne wrote:
Sat Jun 30, 2018 9:56 pm
...

To update:
1. I have done an "in kind" transfer w/ both of the funds I had, FBLAX (Franklin Balanced Fund Class A) and FKINX (Franklin Income Fund Class A)
2. Within that transfer time the price of them dropped a bit (of course) and I really wanted to "time" the market but from ALL of my reading I sucked it up and hit the sell button for both on Friday.
3. I have now $40,789.51 to direct toward my future.

...

Age 47
Income approx. 33k
Annual living expense 14k (1200 mth)
Fed tax rate 12%
Indiana tax rate 3.23%
EF 10k
Local savings covers Insurance, Prop tax, vehicle registration
Home paid for, no debt
Annual retirement 6k

To clarify my understanding of your current position...

Principal - $40,789.51 (Vanguard traditional IRA <--F-T tIRA <-- old 401k) Correct
1. $3k conversion to Roth IRA (realizing I will be taxed) - VASGX LifeStrategy Growth Fund 79.9% Total Stock & Total International / 20.1% Total Bond II & Total International Bond
2. $10k IRA VTSAX Total Stock Market Admiral

Giving you currently:

Account: rIRA (Roth IRA)
--$3K, VASGX (LifeStrategy Growth, 80/20 allocation)

Account: tIRA (traditional IRA)
--$10K, VTSAX (Total Stock Market Index, 100/0 allocation)
--$27,789 in your cash settlement fund

Is this correct?
You are understanding me correctly.

...and I'm stuck finishing up the IRA.

I have really leaned toward VMAX Mid-cap value Index Admiral but my gut says that make me too heavy in stocks.
Contemplated VEIPX Equity Income Fund Lg. Value .26% exp
Compared many Growth, Growth & Income, Value funds and have scribbles to show forth. :annoyed
I've read up on bond and International and I just don't have the understanding or experience but I realize many have these included in their portfolios. I seriously don't know how to direct the rest of the money. I don't believe I could afford the taxes to convert more to Roth at this point.

Internally I struggle with the feeling of lost time so I dangerously (emotionally) want to lean toward major risk to make up time and also knowing the market is high and has ran a long decent track and I'm stepping in late. I just need level headed guidance and I desire simplicity.

You can use other than the recommended total market* investment if you know a certain market sector** (individual stocks, mid cap index fund, energy fund,…) will outperform over the long run. If not, then not.

* The 3-fund portfolio invests in the total market, and uses enough bonds to temper our risk exposure.

** We are allowed to make market sector bets with our play money (5% of our total investments). Why? So we can scratch the itch to be “doing something”. Simple action step: stop playing if you lose this money.

Simple action step. If when you look into a mirror, you see Warren Buffett looking back at you, then you can invest in anything you want. If not, then it’s recommended to stick with total market index funds until we are more experienced and have enough money to lose playing. :)



A first look at coming up with simple IRA (both) solutions. Which funds to use?

Suggestion…

Account: rIRA (Roth IRA)
--$3K, VASGX (LifeStrategy Growth, 80/20 allocation)

Account: tIRA (traditional IRA)
--$37,789, VASGX (LifeStrategy Growth, 80/20 allocation)

Why? Simplicity. If VASGX is appropriate in an IRA (or 401k,...), then it's appropriate for all.


A second look at your IRAs. How aggressive should you be?

We are advised to use the 3-funds (all-in-one funds do this for us) and have less bonds to take more risk (be more aggressive), and more bonds to take less risk (be more conservative).

Rules of thumb.
--Conservative AA (asset allocation): Have your age in bonds. Suggests 47% bonds is appropriate for you.
--Aggressive AA: Have your age-10 in bonds. Suggests 37% bonds.

VASGX, at 80/20, would be considered to be maybe too aggressive* for your age. Instead maybe consider the LS (LifeStrategy) fund that is 60/40 as being more appropriate.

* If you have multiple secure sources of income going into retirement, so you don’t need to worry about a multi-year market correction, then being too aggressive (the total AA of your 401k+IRA+taxable) is okay.


Fund(s) selection, AA? Your choice.


Bottom line.
--Your IRA solution could be as simple as using only one fund for both (rIRA+tIRA).
--If you want to use multiple funds, then it's suggested we put the more risky fund (100/0) in our rIRA. Why? For the expectation* of more tax-free growth until withdrawn. (* Expectation, yes; guarantee, no.)



Plan B. Add this to your planning under “additional sources of income”.
--With your paid off house, you could get a reverse mortgage.

My neighbors used a reverse mortgage like a HELOC (home equity line of credit, with tIRA RMDs + SS) and withdrew only as much money as needed each month to make ends meet. The reverse mortgage was paid off when the estate was settled.
I have definitely gone in circles looking at Target Retirement 2040 fund, LifeStrategy Growth 80/20 and LifeStrategy Moderate Growth 60/40. I moved the TR 2040 fund off the table because I didn't really want it changing on me at the wrong time or any surprises.

I chose the LS Growth 80/20 because it is more risky, it takes $3000 to start-up which made sense to me to be a good way to start the Roth. It's been tough trying to figure out how to get the Roth started w/o hurting myself to badly in taxes. My main focus will be building (adding to) the Roth.

I didn't want an all in one fund for both the rIRA and tIRA because I would like to have the opportunity to add to the VTSAX (Total Stock Market) if/when the markets take a downturn...hoping I can actually follow through with that thought during that time. :shock:

If my account was a Roth already this would be a bit easier. I didn't want to start the Roth w/ just $3000 of VTSAX. But I'm not completely sure of myself w/ that thought. I would like to have a strong (risky) left hand(rIRA) and a Moderate right hand (tIRA) but there are darn taxes facing me when I open the left (rIRA). (yes, this is really how my brain works - I'm a visual learner) :wink:

Any of this make sense? ha ha I'm definitely slowly learning. It's just trying to get the correct solid foundation built so I can set things on autopilot. The whole tax thing is complicated. I've also enjoyed the Vanguard website and being able to see the process. I feel like I'm getting a glimpse behind the scene after so many years of just investing into oblivion and not realizing or even questioning the process.

User avatar
dratkinson
Posts: 4383
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: 47 and clueless - direction needed

Post by dratkinson » Mon Jul 02, 2018 3:08 am

chattyanne wrote:
Sun Jul 01, 2018 4:42 pm
...

I have definitely gone in circles looking at Target Retirement 2040 fund, LifeStrategy Growth 80/20 and LifeStrategy Moderate Growth 60/40. I moved the TR 2040 fund off the table because I didn't really want it changing on me at the wrong time or any surprises.

I chose the LS Growth 80/20 because it is more risky, it takes $3000 (Had to go look that up as the min for all-in-one funds use to be $1K.) to start-up which made sense to me to be a good way to start the Roth. It's been tough trying to figure out how to get the Roth started w/o hurting myself to badly in taxes. My main focus will be building (adding to) the Roth.

I didn't want an all in one fund for both the rIRA and tIRA because I would like to have the opportunity to add to the VTSAX (Total Stock Market) if/when the markets take a downturn...hoping I can actually follow through with that thought during that time. :shock:


Keeping $27K in your tIRA settlement fund in the hope of buying VTSAX at a discount during a market correction exposes you to "cash drag" (=the annual loss against inflation because your cash is earning ~nothing.) Inflation is currently ~2%.

You would be better off owning something expected to move opposite of stocks so it would hopefully be up when stocks are down. That something is a (intermediate-term) treasury bond fund (VFITX). During the 2008-2009 market correction, treasuries were up due to flight to quality, so made it easy to switch to stocks. Search forum for discussions on "flight to quality".


Disclosure. I too was advised to use VFITX in my IRA during my forum review. It's very safe. It’s also very low yield, ...and very boring. I eventually, after ~2yrs, couldn't stand it so switched to something more likely to provide more risk/reward.

I was 55 and had little to show for my prior misguided investing efforts when I found the “lazy portfolio” way of investing (search on MarketWatch website); I blindly copied one. I wanted to make up for lost time. I was 60 when I found the BH forum and the BH review showed me the errors committed by blindly copying an inappropriate lazy portfolio.

I tried the forum’s safe way first. But I eventually learned I would rather lose money trying to be more aggressive, than to lose money being too safe. But! I can afford to be aggressive because I will have the benefit of an indexed pension+SS.

Switching from safer investments to more risky investments when I have the ability to tolerate additional risk is a recognized alternate route to Dublin. It would NOT be recommended if I could not tolerate additional risk---the possibility that the market could crash as I neared retirement and my retirement nest egg be cut in half.


Maybe TBM (VBMFX, total bond market fund) would be better for you as it would produce higher yield, should be little affected by a market correction, and would provide dry powder to buy VTSAX during a market correction. TBM’s component bonds are treasuries + mortgage backed securities (MBS) + corporate bonds, ~one third each.

As MBS are deprecated, some choose to avoid them so use Vanguard’s intermediate-term bond index fund (VBIIX) with bond components treasuries + corporate, ~50/50.

Others chose to take their additional risk by using (intermediate-term) corporate bonds and avoid safer/lower-yield treasuries altogether. Corporate bonds are expected to lose a little value during a market correction, whereas treasuries should not. But corporate bonds will lose much less value than equities during a correction so can still be used as dry powder.

Suggest you read the Wiki’s two recommended bond “books” (search term). Where recommended authors agree, that is the major road to Dublin. Where recommended authors disagree, those are alternate routes to Dublin and they are more risky. We must know we can tolerate the additional risk before going an alternate route.

Which bonds should you use? This must be your choice. But TBM is the 3-fund portfolio’s recommended starting point.

You could begin with the safe recommendation while you learn more about investing and your true risk tolerance. Then make a course correction after you are more knowledgeable. (That’s what I did after ~2-3yrs of additional reading.)


Tax consequences. There are no tax consequences to sell bonds in your tIRA to purchase more VTSAX in your tIRA.



If my account was a Roth already this would be a bit easier. I didn't want to start the Roth w/ just $3000 of VTSAX. (From above, VTSAX is in your tIRA, not in your rIRA. Or was the use of VTSAX an option considered and rejected?) But I'm not completely sure of myself w/ that thought. I would like to have a strong (risky) left hand(rIRA) and a Moderate right hand (tIRA) but there are darn taxes facing me when I open the left (rIRA). (yes, this is really how my brain works - I'm a visual learner) :wink:


I'm a visual learner, too. That’s why I map things out so I can see all of the pieces.

Your left hand (rIRA, VASGX, 80/20) is risky. Goal achieved.

But your right hand (tIRA, VTSAX/cash, 27/73) is too conservative and exposed you to loss due to cash drag. Would probably be better to use something closer to TSM/TBM/cash 50/50/0 to give you moderate risk/growth.

Go back and review the link to Vanguard's definition of the AAs associated with its model portfolios.



Any of this make sense? ha ha I'm definitely slowly learning. It's just trying to get the correct solid foundation built so I can set things on autopilot. The whole tax thing is complicated. I've also enjoyed the Vanguard website and being able to see the process. I feel like I'm getting a glimpse behind the scene after so many years of just investing into oblivion and not realizing or even questioning the process.

There is no one perfect portfolio, only one that is correct for each of us.

The only person who must be satisfied with your investments is you. If you can justify your investments to yourself, and it is supported by the recommended books, ...then that's good enough. (You are allowed to make course corrections as you learn more and can justify each.)

The forum calls our different implementations of recommended investments “different roads to Dublin”. Since the best road to Dublin (the creation of our retirement nest egg) can only be known in hindsight, before then all are considered to be reasonably good so we are allowed to go our own way.

“The enemy of a good plan is the dream of a perfect plan.” Believe this was originally said by Prussian general Karl von Clausewitz, but it is embraced by Mr Bogle. Meaning: Start with a good plan; refine it as you learn more.

It is our responsibility is to learn/know the major roads to Dublin (the opinion for ALL recommended authors), the alternate roads to Dublin (the opinion of only some recommended authors), and when we are deviating from them.
--Your use of a LS fund in your rIRA is on a major road to Dublin.
--Your being overly aggressive in your rIRA AA is an allowed alternate route if you know/accept/can tolerate the additional risk and it makes you happy. (Been there; done that.)
--Your use of a TSM fund in your tIRA is on a major road to Dublin.
--Your conversion to a rIRA in a low tax bracket when you expect to NOT need the tIRA RMDs in retirement is on a major road to Dublin. (The conversion would be not recommended if you expected to need the RMDs in retirement. Why? Since you must withdraw the money to live on in retirement, better to delay taxes as long as possible.)
--Your having a large cash holding in your tIRA during your accumulation years is NOT on any road (major or alternate) to Dublin. Why? The cash drag loses to inflation every year---currently ~2%. Better instead to use a recommended bond fund and accept the risk that it could lose a little value during a market correction, but it can still serve in the role as dry powder.

Why? Because…
--Stocks can lose 50-90% during a stock correction (lost ~40% in 2008, ~90% during the great depression).
--Bonds can lose 5-15% during a bond correction.
--Stock/bond corrections are not typically coincidental.

Bottom line. Don’t sweat owning good bonds.

All of this information is in the recommended books.

Simple actions steps.
--Begin with a recommended good road to Dublin
--Make course corrections as your knowledge increases and you can accept the additional risk of doing so.





Edit. Second thoughts.
Last edited by dratkinson on Mon Jul 02, 2018 6:58 pm, edited 3 times in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

sksbog
Posts: 229
Joined: Wed Jun 20, 2012 9:14 pm

Re: 47 and clueless - direction needed

Post by sksbog » Mon Jul 02, 2018 5:22 am

CnC wrote:
Thu Jun 14, 2018 7:34 am
Wow they are screwing you over on the front end and the back end. I do not exaggerate here. That is beyond simple negligence that is simply exploiting of the I'll informed.


I would get out as soon as possible.

This is why a rule called Fiduciary, was in table for Congress. Sounds like common sense, but is so uncommon that they had to make a rule that tells the financial advisors that they should make decisions in favor of their clients best interests and not their own.

chattyanne
Posts: 24
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Wed Jul 04, 2018 8:54 am

sksbog wrote:
Mon Jul 02, 2018 5:22 am
CnC wrote:
Thu Jun 14, 2018 7:34 am
Wow they are screwing you over on the front end and the back end. I do not exaggerate here. That is beyond simple negligence that is simply exploiting of the I'll informed.


I would get out as soon as possible. Gettin out! Gettin out! :happy

This is why a rule called Fiduciary, was in table for Congress. Sounds like common sense, but is so uncommon that they had to make a rule that tells the financial advisors that they should make decisions in favor of their clients best interests and not their own. I have never even heard of a Fiduciary until a few months ago when a financial person was speaking on the radio. I was driving at the time and wrote the word down so I could do some investigating which also helped lead me to this forum.

chattyanne
Posts: 24
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Wed Jul 04, 2018 9:31 am

dratkinson wrote:
Mon Jul 02, 2018 3:08 am
chattyanne wrote:
Sun Jul 01, 2018 4:42 pm
...

I have definitely gone in circles looking at Target Retirement 2040 fund, LifeStrategy Growth 80/20 and LifeStrategy Moderate Growth 60/40. I moved the TR 2040 fund off the table because I didn't really want it changing on me at the wrong time or any surprises.

I chose the LS Growth 80/20 because it is more risky, it takes $3000 (Had to go look that up as the min for all-in-one funds use to be $1K.) to start-up which made sense to me to be a good way to start the Roth. It's been tough trying to figure out how to get the Roth started w/o hurting myself to badly in taxes. My main focus will be building (adding to) the Roth.

I didn't want an all in one fund for both the rIRA and tIRA because I would like to have the opportunity to add to the VTSAX (Total Stock Market) if/when the markets take a downturn...hoping I can actually follow through with that thought during that time. :shock:


Keeping $27K in your tIRA settlement fund in the hope of buying VTSAX at a discount during a market correction exposes you to "cash drag" (=the annual loss against inflation because your cash is earning ~nothing.) Inflation is currently ~2%. I may not have explained myself well. I'm not planning on keeping anything in the settlement fund. I didn't want the rIRA and tIRA both to be in all in one funds. I'm going to set-up the tIRA w/ individual funds so in the future when the markets drop I can increase the total stock shares at a cheaper price. I just need it to be where I can feed it directly...as a separate fund.

You would be better off owning something expected to move opposite of stocks so it would hopefully be up when stocks are down. That something is a (intermediate-term) treasury bond fund (VFITX). During the 2008-2009 market correction, treasuries were up due to flight to quality, so made it easy to switch to stocks. Search forum for discussions on "flight to quality". I've been struggling w/ bond funds. I think it's because the core of me doesn't want to support debt at all, but I have to trust and move forward w/ all of the information given that this is wise. UGH! I just continue to read and somehow come to terms within myself to agree with understanding.


Disclosure. I too was advised to use VFITX in my IRA during my forum review. It's very safe. It’s also very low yield, ...and very boring. I eventually, after ~2yrs, couldn't stand it so switched to something more likely to provide more risk/reward.

I was 55 and had little to show for my prior misguided investing efforts when I found the “lazy portfolio” way of investing (search on MarketWatch website); I blindly copied one. I wanted to make up for lost time. I was 60 when I found the BH forum and the BH review showed me the errors committed by blindly copying an inappropriate lazy portfolio.

I tried the forum’s safe way first. But I eventually learned I would rather lose money trying to be more aggressive, than to lose money being too safe. But! I can afford to be aggressive because I will have the benefit of an indexed pension+SS.

Switching from safer investments to more risky investments when I have the ability to tolerate additional risk is a recognized alternate route to Dublin. It would NOT be recommended if I could not tolerate additional risk---the possibility that the market could crash as I neared retirement and my retirement nest egg be cut in half.


Maybe TBM (VBMFX, total bond market fund) would be better for you as it would produce higher yield, should be little affected by a market correction, and would provide dry powder to buy VTSAX during a market correction. TBM’s component bonds are treasuries + mortgage backed securities (MBS) + corporate bonds, ~one third each.

As MBS are deprecated, some choose to avoid them so use Vanguard’s intermediate-term bond index fund (VBIIX) with bond components treasuries + corporate, ~50/50.

Others chose to take their additional risk by using (intermediate-term) corporate bonds and avoid safer/lower-yield treasuries altogether. Corporate bonds are expected to lose a little value during a market correction, whereas treasuries should not. But corporate bonds will lose much less value than equities during a correction so can still be used as dry powder.

Suggest you read the Wiki’s two recommended bond “books” (search term). Where recommended authors agree, that is the major road to Dublin. Where recommended authors disagree, those are alternate routes to Dublin and they are more risky. We must know we can tolerate the additional risk before going an alternate route.

Which bonds should you use? This must be your choice. But TBM is the 3-fund portfolio’s recommended starting point.

You could begin with the safe recommendation while you learn more about investing and your true risk tolerance. Then make a course correction after you are more knowledgeable. (That’s what I did after ~2-3yrs of additional reading.)


Tax consequences. There are no tax consequences to sell bonds in your tIRA to purchase more VTSAX in your tIRA.



If my account was a Roth already this would be a bit easier. I didn't want to start the Roth w/ just $3000 of VTSAX. (From above, VTSAX is in your tIRA, not in your rIRA. Or was the use of VTSAX an option considered and rejected?) But I'm not completely sure of myself w/ that thought. I would like to have a strong (risky) left hand(rIRA) and a Moderate right hand (tIRA) but there are darn taxes facing me when I open the left (rIRA). (yes, this is really how my brain works - I'm a visual learner) :wink:


I'm a visual learner, too. That’s why I map things out so I can see all of the pieces.

Your left hand (rIRA, VASGX, 80/20) is risky. Goal achieved.

But your right hand (tIRA, VTSAX/cash, 27/73) is too conservative and exposed you to loss due to cash drag. Would probably be better to use something closer to TSM/TBM/cash 50/50/0 to give you moderate risk/growth.

Go back and review the link to Vanguard's definition of the AAs associated with its model portfolios.



Any of this make sense? ha ha I'm definitely slowly learning. It's just trying to get the correct solid foundation built so I can set things on autopilot. The whole tax thing is complicated. I've also enjoyed the Vanguard website and being able to see the process. I feel like I'm getting a glimpse behind the scene after so many years of just investing into oblivion and not realizing or even questioning the process.

There is no one perfect portfolio, only one that is correct for each of us.

The only person who must be satisfied with your investments is you. If you can justify your investments to yourself, and it is supported by the recommended books, ...then that's good enough. (You are allowed to make course corrections as you learn more and can justify each.)

The forum calls our different implementations of recommended investments “different roads to Dublin”. Since the best road to Dublin (the creation of our retirement nest egg) can only be known in hindsight, before then all are considered to be reasonably good so we are allowed to go our own way.

“The enemy of a good plan is the dream of a perfect plan.” Believe this was originally said by Prussian general Karl von Clausewitz, but it is embraced by Mr Bogle. Meaning: Start with a good plan; refine it as you learn more.

It is our responsibility is to learn/know the major roads to Dublin (the opinion for ALL recommended authors), the alternate roads to Dublin (the opinion of only some recommended authors), and when we are deviating from them.
--Your use of a LS fund in your rIRA is on a major road to Dublin.
--Your being overly aggressive in your rIRA AA is an allowed alternate route if you know/accept/can tolerate the additional risk and it makes you happy. (Been there; done that.)
--Your use of a TSM fund in your tIRA is on a major road to Dublin.
--Your conversion to a rIRA in a low tax bracket when you expect to NOT need the tIRA RMDs in retirement is on a major road to Dublin. (The conversion would be not recommended if you expected to need the RMDs in retirement. Why? Since you must withdraw the money to live on in retirement, better to delay taxes as long as possible.)
--Your having a large cash holding in your tIRA during your accumulation years is NOT on any road (major or alternate) to Dublin. Why? The cash drag loses to inflation every year---currently ~2%. Better instead to use a recommended bond fund and accept the risk that it could lose a little value during a market correction, but it can still serve in the role as dry powder.

Why? Because…
--Stocks can lose 50-90% during a stock correction (lost ~40% in 2008, ~90% during the great depression).
--Bonds can lose 5-15% during a bond correction.
--Stock/bond corrections are not typically coincidental.

Bottom line. Don’t sweat owning good bonds. working on this :happy

All of this information is in the recommended books.

Simple actions steps.
--Begin with a recommended good road to Dublin
--Make course corrections as your knowledge increases and you can accept the additional risk of doing so.





Edit. Second thoughts.

Thanks again for your guidance, encouragement and shared thoughts. I have faced many rabbit trails during this process of investigating, and learning. So many options which must be narrowed down. Honestly, when I go to the store to buy toothpaste I tend to go blank with all of the different options of brands, sizes, prices. This has not been easy but it does feed an excitement within (unlike toothpaste) and just knowing I'm not stuck is enough for me. The good lesson with my old investments is I've learned what it should look like when I'm closer to retirement. It was very dividend heavy. I think that's why I stuck with it so long. I was seeing the monthly dividends in which made it seem like I was doing well (smoke and mirrors)...plus I was focused on getting out of debt which came to full closure last June.

There is so much information given to me here that I will definitely be studying for the rest of the year and beyond. No time to go shopping and waste money on useless stuff. :D I have to say it doesn't seem that Vanguard's website is very user friendly. I would really like to make a step by step post on the process of "in kind" transfers, credit/debit account, and now the settlement fund which the money just got into last night. So many instructions and explanations seem vague. My expectations were different but I'm not used to having to take every step in the process of investing. I spent a lot of time putting the cart before the horse and researching why it wasn't working when I just needed to wait...or call Vanguard and ask. :oops: I don't mean any of this as a negative. It's been good and I'm getting used to it.

chattyanne
Posts: 24
Joined: Wed Jun 13, 2018 6:56 pm

Re: 47 and clueless - direction needed

Post by chattyanne » Wed Jul 04, 2018 5:53 pm

Everything has finally gotten into the settlement fund and I just finished buying a few Vanguard funds. I still have to wait for the funds to get into the rIRA settlement fund. Basically this is what I will have purchased once things settle.

Starting w/ 40,789.51

rIRA conversion $3k - VASGX LifeStrategy Growth Fund

tIRA 12,550k to VTSAX Total Stocks
12,550k to VMVAX Mid-Cap Value
12,550k to VBTLX Total Bonds

And I still have $139.51 in the settlement fund which I will decide on later. So if I did everything correctly the entire portfolio ended up 68% stocks/32% bonds. I will deposit into the Roth and allow the tIRA do it's own thing for a while.

I believe my 1st post was on June 13th and with much encouragement, suggestions, direction and life long homework I am at the point where I am ready for a break. But not without thanking all of you. You are appreciated greatly.

So first thanks to Jack Bogle whom I listened to many Youtube videos. I was sold once I heard of the past failure which ended up...all of this.
Taylor Larimore and all of the other folks thanks for this forum. Although we can't predict the future, this may give me a bit of hope with a decent retirement. If anything, I've learned much.

And to those who responded

FIREmeup
Billfromct
Alpine_boglehead
Danielc
FiveK
Doctor Rhythm
pkcrafter
fujiters
CraxyCatLady
CnC
SimplicityNow
FOGU
Oak&Elm
Rantk81
Dccboone
Tamalak
Indexonlyplease
F35phixer
FiveK – maybe see you w/ MMM case study. I'm working on it.
Leemiller
3of3
Akblizzard
FireHorse
Sandtrap
SteveJ2
Dstac
sksbog
dratkinson - Thanks for walking along side me and painting pictures. I totally didn't know what I was getting into when you stepped up. Thank you so much! :D

I hope I didn't miss anybody but I really do appreciate you all and this forum. If anything, it's given me a bit more self confidence with the subject of investment. Taking a break now. Happy 4th of July!! :sharebeer

User avatar
dratkinson
Posts: 4383
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: 47 and clueless - direction needed

Post by dratkinson » Thu Jul 05, 2018 11:39 am

chattyanne wrote:
Wed Jul 04, 2018 5:53 pm
... [Thanks.] Taking a break now. Happy 4th of July!! :sharebeer

Looks like you've made a good start. Return when you are ready to take the next bite out of the elephant.



When you do return, it would be better to resume in a new topic. Why? Otherwise your current situation description/questions would begin on page 2 of this topic... which would slow down the new folks joining to help you. So better for them if you resume in a new topic so everyone starts from the same place at post 1 page 1.

Since the new folks will not know your information, for their benefit, your new topic should begin from square one and provide all your current* information/questions as requested in the sticky "Asking Portfolio Questions". Then we all can resume from there and on the same page. (* You don't need to provide your back story, but you can provide a link to this topic so anyone who wants to can review where you've come from.)

When you resume, if you provide a link in this topic to your new topic, then the folks following you here will be notified of your new topic.



Book. Before resuming, might want to read "How to Make Your Money Last" by Jane Bryant Quinn.

Why? It might give you some ideas to explore when you resume.

Why? It contains a lot of information/suggestions for managing our money in retirement. The book is information-dense as she tries to cover every option that could apply to anyone. So most of the book does not apply to everyone, but pieces of it do.

I found it helpful (to get through the book) to only skim the topics (most) which didn't apply to me, and to read in detail those that did. (The reverse mortgage topic provided enough information so it became one of my Plan B options.)



Joke. Acquiring the information we need to manage our investments and plan for our retirement can seem to be as daunting as eating an elephant. How does one eat an elephant? One bite at a time.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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