Life Strategy Growth Fund, Target Fund, or Total Stock Market

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jonbkray
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Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Wed Jun 20, 2018 11:08 am

Hello all,

I'm a 30 years old teacher in NY. I currently invest 10% of my paycheck into a Tax Deferred Annuity where I get 7% on my money at retirement. I also put in $200 a month into my vanguard account into the Target Date 2035 fund (Vanguard Target Retirement 2035 Fund (VTTHX).

I was advised into indexing after reading "The Millionaire Teacher" and the John Bogle's books. Also, in the Intelligent Investor I read about the recommendation of your age in bonds, and the rest in stocks would be a good place to be- so for me that would be 30% allocation in bonds and 70% in stocks (which is why I chose the Target Fund 2035- and also because it has international stock and bonds).

Should I keep investing in this fund, or would I be better off going with the Life Strategy Growth fund as it seems to be making better growth? I have about $4,500 right now in my Vanguard account. Also, I thought about just putting it all into the Total Stock Market fund, but then I'd have no exposure to International stocks, or any bonds.

Any advice would be much appreciated.

Thanks

SoCalT
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by SoCalT » Wed Jun 20, 2018 1:30 pm

Is the Vanguard account you have a regular taxable account or a IRA? I ask because having corporate bonds in a taxable account (even as a portion of a mutual fund like target retirement) will give you more taxable income.

Target Retirement is nice because it's a one and done fund, no need to get too complicated. But a 3 fund portfolio you can rebalance as needed isn't too much harder. Again though, knowing what kind of account you're putting this money in is important.

maj
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by maj » Wed Jun 20, 2018 4:12 pm

In a taxable or non-taxable situation, the Vanguard LifeStrategy Growth Fund is an excellent balanced fund--constantly re-balancing with low turnover and minor capital gains.
Only 20% is invested in bonds, so holding it in a taxable account results in only a small extra income tax on the income produced by bonds.
As you are only 30, you can continue investing in VASGX for years. When you are ready to create a more conservative portfolio, you do not have to sell VASGX. Just stop contributing to it and begin to purchase CD's or open an account in the Vanguard Bond Index Fund (high quality bonds).

As for international stocks, at your age you surely do not want to be investing solely in USA stocks, do you? Globalization may be inhibited at the present time for political reasons, but capitalism will never allow itself to be controlled by politics for very long.

Be sure to work toward a sizeable emergency fund.

You are smart and in good shape.

peace

dbr
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Wed Jun 20, 2018 4:20 pm

A consideration that applies to taxable accounts is that a time goes by and gains accumulate, undoing a choice you decide you don't want becomes costly. For this reason I would not put a blended fund in a taxable account. Actually holding bonds as such in taxable is not so bad as bond funds don't accumulate capital gains and can easily be undone later.

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David Jay
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by David Jay » Wed Jun 20, 2018 5:08 pm

jonbkray wrote:
Wed Jun 20, 2018 11:08 am
I currently invest 10% of my paycheck into a Tax Deferred Annuity where I get 7% on my money at retirement.
My sister is also a teacher with one of these annuities. You will NOT be able to withdraw your money from this annuity with a 7% compounded growth rate. That is the common misdirection (polite term for it) on these annuities.

In fact, to get the “7%”, you will have to annuitize - leave your money with them forever and take your money out in monthly payments over your lifetime. The 7% guarantee is on the so-called “cost basis”, which is used to compute the monthly payout amount. You will get much less if you want to take the money out and use the money as you choose.
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jonbkray
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Wed Jun 20, 2018 5:22 pm

Thanks for the replies so far everyone.

My funds are in a Personal account, NOT an IRA. I am trying to collect as much interest as I can as I am saving up for a home.

I chose the 2035 Target fund as I was trying to do the advice of the 'your age' in bonds, so around 30% of it is bonds now; although I am reading now that having such high amount of bonds isn't ideal now a days.

So, I am contemplating on either:
- putting my $4,500 into LifeStrategy Growth fund which I'd get 80% stocks as someone mentioned. OR
-Switching to a Target Date Fund of 2055 so the allocation would be 90% stocks

What do you guys think?

dbr
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Wed Jun 20, 2018 5:53 pm

jonbkray wrote:
Wed Jun 20, 2018 5:22 pm
Thanks for the replies so far everyone.

My funds are in a Personal account, NOT an IRA. I am trying to collect as much interest as I can as I am saving up for a home.

I chose the 2035 Target fund as I was trying to do the advice of the 'your age' in bonds, so around 30% of it is bonds now; although I am reading now that having such high amount of bonds isn't ideal now a days.

So, I am contemplating on either:
- putting my $4,500 into LifeStrategy Growth fund which I'd get 80% stocks as someone mentioned. OR
-Switching to a Target Date Fund of 2055 so the allocation would be 90% stocks

What do you guys think?
Saving for a home and saving for retirement are two different things. A primary difference is the point in time when you want your money back. When you are ready to buy the home you will want to make sure all the money is still there maybe a few years from now. Retirement money is slowly spent over a long period of time in the future. For home purchase savings you probably don't want any money in stocks because there is too much chance that when you want the money the market will be down and it won't all be there. In the meantime there isn't enough time for the higher return to offset this with extended growth over time.

Your reference to your investment paying interest suggests you are not familiar with stock investments and don't appreciate how much the value can fluctuate from month to month and year to year. Stock investments gain value partly from dividends, which can vary some, and from market value appreciation, which can be wildly unpredictable, including being negative over more than one year.

jonbkray
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Wed Jun 20, 2018 5:56 pm

Alright thanks..

So, if you were me what would you do?
Leave the money in the target 2035 fund, move it to 2055 target fund, or move it to life strategy growth?

dbr
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Wed Jun 20, 2018 6:01 pm

jonbkray wrote:
Wed Jun 20, 2018 5:56 pm
Alright thanks..

So, if you were me what would you do?
Leave the money in the target 2035 fund, move it to 2055 target fund, or move it to life strategy growth?
If you really mean you are saving to buy a house in the next few years you would be best off saving this money in a bank savings account or CDs.

I guess you would have to be more specific if this is the case, how far in the future you want this money back, how much it matters to you how much uncertainty in what is there when you need it and so on. A sometimes rule of thumb is that stock values can be cut in half at any time and may take years to recover, so you should factor that in.

If we have misunderstood and you are truly investing for the long run I would buy a diversified stock fund such as total stock market and if you don't want all the money committed to stocks you can also invest some of the money in a bond fund. I would not use blended funds in a taxable account. The plan should take all your invested assets into account as a whole. It isn't clear exactly what the annuity you hold is.

jonbkray
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Wed Jun 20, 2018 6:07 pm

Alright,

So then, if I understand this correctly, if I wanted to buy a house sooner than later I'd be best getting my money out of this account and putting it in the bank or a CD.

-If I plan to invest for the long haul, i'd be best taking the money out and putting it in a Total Stock Market fund instead of the Lifestrategy Growth fund, or even the Target Fund of 2055 (based on Vangaurd's advice I should be in the 2055 fund, NOT the fund I am in now which is the 2035 fund. ) I'm very confused!

livesoft
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by livesoft » Wed Jun 20, 2018 6:11 pm

How much money do you need for house down payment?

How long do you expect to have to invest to get that amount? 1 year? 10 years?

I don't think a savings account or money market fund or a CD is going to get you where you want to go. Once you get there, then Yes, move your money to such a safe investment while shopping for a home and while continuing to contribute to the home-buying account.

We were never able to buy a home in NY because it would have taken us forever to save up for a down payment.
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jonbkray
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Wed Jun 20, 2018 6:20 pm

Yes, i'm barely able to afford a home in NY- I'm looking at Co-Ops.

Let me just rephrase this to keep it nice and simple. Forget I'm looking to buy a home. What would you guys advise to get the best possible returns for:

-A 30 year old, NY teacher who will receive a pension, and saves 10% of his paycheck for a 7% annuity.
-Puts $200 a month into Vanguard Target 2035 Funds.
-Currently 4,500 in Personal taxable Vanguard account (The target funds)

1. Do I transfer it to a Target 2055 fund (90% stock allocation- following the Warren Buffet rule and current schools of thought age-20 in bonds)
2. Do I transfer it to a Lifestrategy Growth Fund (80% stock)
3. Do I transfer is to Total Stock Market fund?

dbr
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Wed Jun 20, 2018 6:21 pm

jonbkray wrote:
Wed Jun 20, 2018 6:07 pm
Alright,

So then, if I understand this correctly, if I wanted to buy a house sooner than later I'd be best getting my money out of this account and putting it in the bank or a CD.

-If I plan to invest for the long haul, i'd be best taking the money out and putting it in a Total Stock Market fund instead of the Lifestrategy Growth fund, or even the Target Fund of 2055 (based on Vangaurd's advice I should be in the 2055 fund, NOT the fund I am in now which is the 2035 fund. ) I'm very confused!
The Vanguard advice is for the total allocation of all your assets for the long run including through the end of retirement (aka death). Your posts are discussing a little piece of your assets where the alternatives depend on what the money is for and how far in the future you are planning to need the money. The reason to not hold a blended fund in taxable is that it will cost you a little more in taxes now, but if the holding is for the long run and you eventually decide that is not the right fund to be in, it can be expensive to sell it and buy something else due to accumulated capital gains. It is easy enough to buy separate stock and bond funds for this taxable account if some mixture of stocks and bonds is a good choice because you need significant return, have time, and can tolerate the risk. 2055 is also mostly stocks and also risky.

A different issue is to look at the overall plan for your investments, but that is not the question you started asking so I didn't want to send the thread off into a big discussion, thought that might not be a bad idea.

One suggestion is to go here and do some reading: https://www.bogleheads.org/wiki/Getting_started

dbr
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Wed Jun 20, 2018 6:28 pm

jonbkray wrote:
Wed Jun 20, 2018 6:20 pm
Yes, i'm barely able to afford a home in NY- I'm looking at Co-Ops.

Let me just rephrase this to keep it nice and simple. Forget I'm looking to buy a home. What would you guys advise to get the best possible returns for:

-A 30 year old, NY teacher who will receive a pension, and saves 10% of his paycheck for a 7% annuity.
-Puts $200 a month into Vanguard Target 2035 Funds.
-Currently 4,500 in Personal taxable Vanguard account (The target funds)

1. Do I transfer it to a Target 2055 fund (90% stock allocation- following the Warren Buffet rule and current schools of thought age-20 in bonds)
2. Do I transfer it to a Lifestrategy Growth Fund (80% stock)
3. Do I transfer is to Total Stock Market fund?
I would put everything in the total stock fund. Age in bonds rules do not apply to pieces of your asset allocation. Depending on what that annuity is (one sponsored for public employees by NY State or NY Teachers) that annuity may be effectively a bond asset, depending on what the provisions are for accessing the money and when. You have now and as time goes on will have by far the most of your investment in that annuity. I would advise you be very sure you understand what that investment is and how it works. In particular be clear how you get money back from it when you need the money. Aslo be clear what happens if you can't or don't choose to continue working for that employer.

Another topic not yet addressed is having an emergency fund in case of unemployment, a major health crisis, or disability. It is possible that your $4,500 and a great deal more than that should be put away in safe assets, such as a savings account, before investing in stocks.

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ruralavalon
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by ruralavalon » Wed Jun 20, 2018 6:46 pm

jonbkray wrote:
Wed Jun 20, 2018 6:20 pm
Yes, i'm barely able to afford a home in NY- I'm looking at Co-Ops.

Let me just rephrase this to keep it nice and simple. Forget I'm looking to buy a home. What would you guys advise to get the best possible returns for:

-A 30 year old, NY teacher who will receive a pension, and saves 10% of his paycheck for a 7% annuity.
-Puts $200 a month into Vanguard Target 2035 Funds.
-Currently 4,500 in Personal taxable Vanguard account (The target funds)

1. Do I transfer it to a Target 2055 fund (90% stock allocation- following the Warren Buffet rule and current schools of thought age-20 in bonds)
2. Do I transfer it to a Lifestrategy Growth Fund (80% stock)
3. Do I transfer is to Total Stock Market fund?
It makes a very big difference whether you want this money for retirement 30 years or so away, or to buy a home in say 5 years. So don't just ignore the issue of what you want to use the money for and when. Don't "rephrase" that issue out of the picture, that just ignores reality. Ignoring reality is usually a very bad way to make investing decisions.

I agree with dbr, that you should find out in detail your rights under the pension, how you can get your money out, your rights if you don't work there until retirement age, who guarantees it, and how well funded it is.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

livesoft
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by livesoft » Wed Jun 20, 2018 6:57 pm

I think the differences between 100% stock, 90% stock, and 80% stock are practically nil. You could flip a coin twice. If 2 heads, then 100% stock. If 2 tails, then 80% stock. If one head and one tail, then 90% stock. Or something else.
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by Sandtrap » Wed Jun 20, 2018 8:39 pm

1. Set aside "x" amount per month so that in 5 years you will have your home down payment.
2. Set aside "y" and invest in any of the funds you mention.
Do both.
Why?
Because if all of your funds were in Total Stock Market and in 5 years the market dropped 40%. . . what would you do?
That's why your home down payment has to be in a place with security of principal and liquidity.
j

dbr
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Wed Jun 20, 2018 8:56 pm

For those who are interested one can Google for the NY Teachers' Tax Deferred Annuity (TDA) for the details.

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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by TwstdSista » Thu Jun 21, 2018 4:40 am

Simple answer -- in a taxable account, invest in: Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) ER 0.15% But, as you can see, there are a number of factors that make this not a simple question.

When the husband and I were saving for a home, it all went into CDs. Safe, safe, safe from market fluctuations. This turned out to be a good thing, we saved through the 2008 "crash" without losing a penny of our house down payment and bought in 2010.

jonbkray
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Thu Jun 21, 2018 6:48 am

Why the total Stock market fund instead of adding in some bonds with the Lifestategy Growth?

dbr
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Thu Jun 21, 2018 7:38 am

jonbkray wrote:
Thu Jun 21, 2018 6:48 am
Why the total Stock market fund instead of adding in some bonds with the Lifestategy Growth?
A reason not to use blended funds in taxable is that either now or eventually you will not want this fund due to tax costs. Especially if you eventually do not want this fund later on it may be costly to make a change. It is highly unlikely that you would ever not want a tax efficient all stock fund in a taxable account. In any case, a separate investment for low risk assets can be changed without large tax costs because such investments don't accumulate large capital gains. If you do want not all stocks now, which could be reasonable, put some of the money in CDs and the rest in total stock.

Your OP asks for a choice among three funds without allowing for a more flexible thought process about what to do.

jalbert
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jalbert » Thu Jun 21, 2018 8:06 am

A reason not to use blended funds in taxable is that either now or eventually you will not want this fund due to tax costs.
+1
Once you have a significant embedded gain in a LifeStrategy or Target Retirement fund in a taxable account, you will be locked in due to the tax consequences of a withdrawal.

Your finances may look very different 20 years from now and it is inadvisable to restrict your future options now.

If you want a similar investment to LifeStrategy Growth in a taxable account but in separate funds, you might consider:

56% VTSAX
24% VTIAX
20% VSIGX

VSIGX is a treasury bond fund so the interest will be exempt from NY taxes.

You also might consider contributing to a Roth IRA. A LifeStrategy or Target Retirement fund is an excellent choice there.
Risk is not a guarantor of return.

jonbkray
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Thu Jun 21, 2018 8:09 am

jalbert wrote:
Thu Jun 21, 2018 8:06 am
A reason not to use blended funds in taxable is that either now or eventually you will not want this fund due to tax costs.
+1
Once you have a significant embedded gain in a LifeStrategy or Target Retirement fund in a taxable account, you will be locked in due to the tax consequences of a withdrawal.

Your finances may look very different 20 years from now and it is inadvisable to restrict your future options now.

If you want a similar investment to LifeStrategy Growth in a taxable account but in separate funds, you might consider:

56% VTSAX
24% VTIAX
20% VSIGX

VSIGX is a treasury bond fund so the interest will be exempt from NY taxes.

You also might consider contributing to a Roth IRA. A LifeStrategy or Target Retirement fund is an excellent choice there.
Thanks but those funds have a minimum require of $10,000. I only have $4,500 which is why I figured to use the LifeStrategy- but the tax disadvantages I didn't really think of.

I don't want to use this money in a roth as I might need it sooner than later..

jalbert
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jalbert » Thu Jun 21, 2018 8:33 am

You can take the contributed principal out of a Roth IRA at any time. Only the investment gain is subject to withdrawal penalties before 59.5.

You can use ETFs instead of mutual funds to avoid the minimums in taxable space eg

80% VTI (US stocks)
20% VTIP (short-term TIPS)

Would be what I might use for an aggressive home down payment savings plan.
Risk is not a guarantor of return.

Arinbjorn
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by Arinbjorn » Thu Jun 21, 2018 8:35 am

If it's your first home purchase, you can withdrawal your principal tax free. At least that's what I recall - can anyone second that?

So get one of those, and put your house savings in the Vanguard Total Bond Market Index, or whatever you feel is safe. Pull it when you want it.

For retirement - utilize tax sheltered accounts! The Vanguard Stock Market Index Investor Shares, and Vanguard Total Bond Market Index Investor Shares. Dip into International stocks/bonds when your balance has grown more. Or just use a Target Date fund in a tax sheltered account, such as a Roth or Traditional IRA.

Otherwise, just keep your house savings in a high yield savings account like Ally or similar. Your house savings is a separate chunk from your retirement savings, ultimately.

Be careful about any annuities. You may be better off keeping control of your money yourself.

Arinbjorn
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by Arinbjorn » Thu Jun 21, 2018 8:36 am

*pull principal from a Roth IRA tax free for first home purchase. Sorry, on mobile and just finished a long night shift!

guyesmith
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by guyesmith » Thu Jun 21, 2018 10:18 am

Make money. Pay taxes. Don't make money. Don't pay taxes.

jonbkray
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Thu Jun 21, 2018 10:54 am

jalbert wrote:
Thu Jun 21, 2018 8:33 am
You can take the contributed principal out of a Roth IRA at any time. Only the investment gain is subject to withdrawal penalties before 59.5.

You can use ETFs instead of mutual funds to avoid the minimums in taxable space eg

80% VTI (US stocks)
20% VTIP (short-term TIPS)

Would be what I might use for an aggressive home down payment savings plan.
I didn't think about this, maybe I should do ETF's and pick my allocation? VTIP is for US Bonds?

MNGopher
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by MNGopher » Thu Jun 21, 2018 11:08 am

I would start by figuring out how much your teachers pension fund will pay you in retirement, and at what age you can take it. It's probably some formula like 50% of your highest years salary. Once you know this you will have a better target as to how much you have to save in your personal accounts to use along with your state pension in retirement.

If you determine that your income now (at a young age), is less than your state pension will pay you, then a Roth IRA might be a wise choice (allocated mostly stock 90/10 or 80/20 because this is retirement money and you have a long time horizon).

I don't know anything about the particular annuity you are in, but annuities in general are not your friend. They do basically the same thing as your pension, but at a higher cost to you. If you have access to a 403B or 457 through your employer I would put tax deferred income there instead of the annuity. This will be even more important as your salary gets higher, because at some point your salary will be greater than your projected pension annual payout.

jonbkray
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Thu Jun 21, 2018 11:12 am

MNGopher wrote:
Thu Jun 21, 2018 11:08 am
I would start by figuring out how much your teachers pension fund will pay you in retirement, and at what age you can take it. It's probably some formula like 50% of your highest years salary. Once you know this you will have a better target as to how much you have to save in your personal accounts to use along with your state pension in retirement.

If you determine that your income now (at a young age), is less than your state pension will pay you, then a Roth IRA might be a wise choice (allocated mostly stock 90/10 or 80/20 because this is retirement money and you have a long time horizon).

I don't know anything about the particular annuity you are in, but annuities in general are not your friend. They do basically the same thing as your pension, but at a higher cost to you. If you have access to a 403B or 457 through your employer I would put tax deferred income there instead of the annuity. This will be even more important as your salary gets higher, because at some point your salary will be greater than your projected pension annual payout.
Thanks, and if i were to do the 90/10 or 80/20 thing, which fund(s) would I pick?

dbr
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Thu Jun 21, 2018 11:17 am

MNGopher wrote:
Thu Jun 21, 2018 11:08 am
I would start by figuring out how much your teachers pension fund will pay you in retirement, and at what age you can take it. It's probably some formula like 50% of your highest years salary. Once you know this you will have a better target as to how much you have to save in your personal accounts to use along with your state pension in retirement.

If you determine that your income now (at a young age), is less than your state pension will pay you, then a Roth IRA might be a wise choice (allocated mostly stock 90/10 or 80/20 because this is retirement money and you have a long time horizon).

I don't know anything about the particular annuity you are in, but annuities in general are not your friend. They do basically the same thing as your pension, but at a higher cost to you. If you have access to a 403B or 457 through your employer I would put tax deferred income there instead of the annuity. This will be even more important as your salary gets higher, because at some point your salary will be greater than your projected pension annual payout.
FWIW that annuity he mentions is not really an annuity but a benefit of the NY Teachers' Retirement System that is more like a defined contribution plan but has some peculiar properties, including that 7% guarantee fund: https://www.google.com/search?source=hp ... gyfrCx4xfA

MNGopher
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by MNGopher » Thu Jun 21, 2018 11:31 am

jonbkray wrote:
Thu Jun 21, 2018 11:12 am
MNGopher wrote:
Thu Jun 21, 2018 11:08 am
I would start by figuring out how much your teachers pension fund will pay you in retirement, and at what age you can take it. It's probably some formula like 50% of your highest years salary. Once you know this you will have a better target as to how much you have to save in your personal accounts to use along with your state pension in retirement.

If you determine that your income now (at a young age), is less than your state pension will pay you, then a Roth IRA might be a wise choice (allocated mostly stock 90/10 or 80/20 because this is retirement money and you have a long time horizon).

I don't know anything about the particular annuity you are in, but annuities in general are not your friend. They do basically the same thing as your pension, but at a higher cost to you. If you have access to a 403B or 457 through your employer I would put tax deferred income there instead of the annuity. This will be even more important as your salary gets higher, because at some point your salary will be greater than your projected pension annual payout.
Thanks, and if i were to do the 90/10 or 80/20 thing, which fund(s) would I pick?
I use Vanguard lifestrategy growth VASGX in my Roth with is 80/20 but I'm older and closer to retirement than you. You could be more a aggressive in a Roth if you wanted to.

Is the annuity you spoke of a defined contribution plan (you select how much you put in) or a defined benefit plan (like a pension where all employees mandatoraly put in the same % each check)?

jonbkray
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Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Thu Jun 21, 2018 11:34 am

MNGopher wrote:
Thu Jun 21, 2018 11:31 am
jonbkray wrote:
Thu Jun 21, 2018 11:12 am
MNGopher wrote:
Thu Jun 21, 2018 11:08 am
I would start by figuring out how much your teachers pension fund will pay you in retirement, and at what age you can take it. It's probably some formula like 50% of your highest years salary. Once you know this you will have a better target as to how much you have to save in your personal accounts to use along with your state pension in retirement.

If you determine that your income now (at a young age), is less than your state pension will pay you, then a Roth IRA might be a wise choice (allocated mostly stock 90/10 or 80/20 because this is retirement money and you have a long time horizon).

I don't know anything about the particular annuity you are in, but annuities in general are not your friend. They do basically the same thing as your pension, but at a higher cost to you. If you have access to a 403B or 457 through your employer I would put tax deferred income there instead of the annuity. This will be even more important as your salary gets higher, because at some point your salary will be greater than your projected pension annual payout.
Thanks, and if i were to do the 90/10 or 80/20 thing, which fund(s) would I pick?
I use Vanguard lifestrategy growth VASGX in my Roth with is 80/20 but I'm older and closer to retirement than you. You could be more a aggressive in a Roth if you wanted to.

Is the annuity you spoke of a defined contribution plan (you select how much you put in) or a defined benefit plan (like a pension where all employees mandatoraly put in the same % each check)?

I select how much I put in up to a certain amount, like 19% max I think.. So if I should be more aggressive it's looking like I'll put my 4500 into the Total Stock Market Fund

1CEBITN
Posts: 45
Joined: Mon May 07, 2018 2:14 pm

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by 1CEBITN » Thu Jun 21, 2018 11:43 am

The Tax Deferred Annuity is your 403B tax-deferred retirement savings program. Like others have said, there is likely a catch (as with all annuity products) to get any kind of guaranteed return post-retirment - I.E. you would have to turn it into an annuity product where they keep your money and pay you monthly. Your TDA contributions are being invested so they could lose money while you are actively teaching and it doesn't look like they provide you with great options for investing - but it is tax deferred so there is a return just from that in theory. You can contribute up to $18,500 into that account a year tax-deferred. If you ever leave teaching or move out of NY to teach somewhere else I would roll that into an IRA as quick as you can to get better investment choices.

Lots of great ideas here already but I would try to take advantage of as many tax benefits as you can if I were you, assuming this is all retirement money. You could make those extra contributions into either a traditional or Roth IRA so you can invest in either a target date fund or the life strategy fund or a basic 3-fund portfolio without tax consequences from the dividends those pay every year. Personally, I like simple so I'd pick either the TD fund or the life strategy unless you like monkeying with your funds once/year to manually maintain your asset allocation. Until you make more money than will allow you to do IRA contributions on top of your TDA (403b) account, that's what I would do, again, assuming that is all for retirement. For an overview of the basic investment philosophies here start with https://www.bogleheads.org/wiki/Boglehe ... art-up_kit. There is a link to the 3-fund portfolio recommendation off that page as well.

In addition to retirement savings though you should really think about a savings account or MM fund for emergencies or just a place to park any extra money for that house or car or whatever you will need in the next 3-5 years. If you had to replace your car next week or something unexpectedly expensive happened, how would you cover that? Don't invest money you can't afford to lose for short-term expenses. I applaud you for being so savings-conscious at 30. I wish I had thought my retirement strategy through at that age, I'd likely be done working by now and driving my wife crazy instead.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Thu Jun 21, 2018 11:46 am

MNGopher wrote:
Thu Jun 21, 2018 11:31 am
jonbkray wrote:
Thu Jun 21, 2018 11:12 am
MNGopher wrote:
Thu Jun 21, 2018 11:08 am
I would start by figuring out how much your teachers pension fund will pay you in retirement, and at what age you can take it. It's probably some formula like 50% of your highest years salary. Once you know this you will have a better target as to how much you have to save in your personal accounts to use along with your state pension in retirement.

If you determine that your income now (at a young age), is less than your state pension will pay you, then a Roth IRA might be a wise choice (allocated mostly stock 90/10 or 80/20 because this is retirement money and you have a long time horizon).

I don't know anything about the particular annuity you are in, but annuities in general are not your friend. They do basically the same thing as your pension, but at a higher cost to you. If you have access to a 403B or 457 through your employer I would put tax deferred income there instead of the annuity. This will be even more important as your salary gets higher, because at some point your salary will be greater than your projected pension annual payout.
Thanks, and if i were to do the 90/10 or 80/20 thing, which fund(s) would I pick?
I use Vanguard lifestrategy growth VASGX in my Roth with is 80/20 but I'm older and closer to retirement than you. You could be more a aggressive in a Roth if you wanted to.

Is the annuity you spoke of a defined contribution plan (you select how much you put in) or a defined benefit plan (like a pension where all employees mandatoraly put in the same % each check)?
See here: FWIW that annuity he mentions is not really an annuity but a benefit of the NY Teachers' Retirement System that is more like a defined contribution plan but has some peculiar properties, including that 7% guarantee fund: https://www.google.com/search?source=hp ... gyfrCx4xfA

MNGopher
Posts: 278
Joined: Tue Jun 16, 2015 1:44 pm

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by MNGopher » Thu Jun 21, 2018 11:48 am

I don't know enough about how the NY teachers pension system works. Does your school district match part of your contribution? Here in MN we all pay about 7.5% employee and 7.5% employer contribution out of every check. This makes it pretty easy to make projections about how much the pension will pay at different ages and at different salaries.

Our state pension is fairly stable and funded so I'm pretty confident it will be there when I retire. Therefor I am a little more aggressive in my personal accounts at Vanguard (Roth, 403B, and taxable) than someone in the private sector would be. I'm not sure the NY situation. If the system is stable and well funded, then you could be more aggressive. But that is a personal choice.

MNGopher
Posts: 278
Joined: Tue Jun 16, 2015 1:44 pm

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by MNGopher » Thu Jun 21, 2018 11:54 am

dbr wrote:
Thu Jun 21, 2018 11:46 am
MNGopher wrote:
Thu Jun 21, 2018 11:31 am
jonbkray wrote:
Thu Jun 21, 2018 11:12 am
MNGopher wrote:
Thu Jun 21, 2018 11:08 am
I would start by figuring out how much your teachers pension fund will pay you in retirement, and at what age you can take it. It's probably some formula like 50% of your highest years salary. Once you know this you will have a better target as to how much you have to save in your personal accounts to use along with your state pension in retirement.

If you determine that your income now (at a young age), is less than your state pension will pay you, then a Roth IRA might be a wise choice (allocated mostly stock 90/10 or 80/20 because this is retirement money and you have a long time horizon).

I don't know anything about the particular annuity you are in, but annuities in general are not your friend. They do basically the same thing as your pension, but at a higher cost to you. If you have access to a 403B or 457 through your employer I would put tax deferred income there instead of the annuity. This will be even more important as your salary gets higher, because at some point your salary will be greater than your projected pension annual payout.
Thanks, and if i were to do the 90/10 or 80/20 thing, which fund(s) would I pick?
I use Vanguard lifestrategy growth VASGX in my Roth with is 80/20 but I'm older and closer to retirement than you. You could be more a aggressive in a Roth if you wanted to.

Is the annuity you spoke of a defined contribution plan (you select how much you put in) or a defined benefit plan (like a pension where all employees mandatoraly put in the same % each check)?
See here: FWIW that annuity he mentions is not really an annuity but a benefit of the NY Teachers' Retirement System that is more like a defined contribution plan but has some peculiar properties, including that 7% guarantee fund: https://www.google.com/search?source=hp ... gyfrCx4xfA
Thanks.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by dbr » Thu Jun 21, 2018 12:03 pm

MNGopher wrote:
Thu Jun 21, 2018 11:48 am
I don't know enough about how the NY teachers pension system works. Does your school district match part of your contribution? Here in MN we all pay about 7.5% employee and 7.5% employer contribution out of every check. This makes it pretty easy to make projections about how much the pension will pay at different ages and at different salaries.

Our state pension is fairly stable and funded so I'm pretty confident it will be there when I retire. Therefor I am a little more aggressive in my personal accounts at Vanguard (Roth, 403B, and taxable) than someone in the private sector would be. I'm not sure the NY situation. If the system is stable and well funded, then you could be more aggressive. But that is a personal choice.
Not the OP, so . . . but my understanding is that the system offers a defined benefit pension (I don't know if he has to pay into that) for which the OP will qualify and in addition this defined contribution plan to which the OP is contributing aggressively. One option in the TDA is a fixed income offering which is subsidized to return 7% p.a. guaranteed, though that "guarantee" was reduced from 8.25% recently. In addition he wants to save some money in a taxable account and/or in a Roth. He has an option to invest in more "regular" stock or bond funds in the TDA. Like a lot of retirement plans use of the word pension or annuity can have various meanings. I think we are all wanting the OP to be sure how all of this is going to work together. Also, the status of Social Security benefits under this system needs to be understood. I don't know if they pay into or benefit from SS nor also their status under Medicare benefits.

jalbert
Posts: 3821
Joined: Fri Apr 10, 2015 12:29 am

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jalbert » Thu Jun 21, 2018 12:48 pm

I didn't think about this, maybe I should do ETF's and pick my allocation? VTIP is for US Bonds?
VTIP is a bond fund but specifically short-term TIPS. If you are going to manage the fund for aggressive growth, you will have a high equity allocation, but if you may use it for a down payment in a shorter horizon, you might as well at least align the bond holdings with the shorter horizon.

TIPS mutual funds distribute interest and principal correction from inflation that is not taxed by states.

You also could use VGIT (intermediate treasuries) for the bond fund. It also distributes interest that is state-tax-free. It would be preferred if investing for a long horizon. But it increases exposure to the risk of inflation being higher than expected over your possible time horizon of using the funds for a home down payment.
Risk is not a guarantor of return.

jonbkray
Posts: 17
Joined: Wed Jun 20, 2018 11:01 am

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Thu Jun 21, 2018 1:18 pm

1CEBITN wrote:
Thu Jun 21, 2018 11:43 am
The Tax Deferred Annuity is your 403B tax-deferred retirement savings program. Like others have said, there is likely a catch (as with all annuity products) to get any kind of guaranteed return post-retirment - I.E. you would have to turn it into an annuity product where they keep your money and pay you monthly. Your TDA contributions are being invested so they could lose money while you are actively teaching and it doesn't look like they provide you with great options for investing - but it is tax deferred so there is a return just from that in theory. You can contribute up to $18,500 into that account a year tax-deferred. If you ever leave teaching or move out of NY to teach somewhere else I would roll that into an IRA as quick as you can to get better investment choices.

Lots of great ideas here already but I would try to take advantage of as many tax benefits as you can if I were you, assuming this is all retirement money. You could make those extra contributions into either a traditional or Roth IRA so you can invest in either a target date fund or the life strategy fund or a basic 3-fund portfolio without tax consequences from the dividends those pay every year. Personally, I like simple so I'd pick either the TD fund or the life strategy unless you like monkeying with your funds once/year to manually maintain your asset allocation. Until you make more money than will allow you to do IRA contributions on top of your TDA (403b) account, that's what I would do, again, assuming that is all for retirement. For an overview of the basic investment philosophies here start with https://www.bogleheads.org/wiki/Boglehe ... art-up_kit. There is a link to the 3-fund portfolio recommendation off that page as well.

In addition to retirement savings though you should really think about a savings account or MM fund for emergencies or just a place to park any extra money for that house or car or whatever you will need in the next 3-5 years. If you had to replace your car next week or something unexpectedly expensive happened, how would you cover that? Don't invest money you can't afford to lose for short-term expenses. I applaud you for being so savings-conscious at 30. I wish I had thought my retirement strategy through at that age, I'd likely be done working by now and driving my wife crazy instead.
Great, thanks.

jonbkray
Posts: 17
Joined: Wed Jun 20, 2018 11:01 am

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Thu Jun 21, 2018 3:51 pm

Alright guys after all the great tips and info i have just a few additional questions:

If I understand correctly the problem with the LS Growth fund is that in a taxable accounts the bonds will hurt me as they will be taxed more.

So, If I was to take A portion of my 4500 and transfer it to the Total Stock Market fund.. and I still wanted to have some bond exposure (maybe 10-20 percent) is it possible and would it be wise to buy another US Bond fund? (Assuming there minimum is 1000 or less since 3000 of my 4500 would go towards the total stock market fund). And if so, which fund exactly would that be?

MNGopher
Posts: 278
Joined: Tue Jun 16, 2015 1:44 pm

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by MNGopher » Thu Jun 21, 2018 8:27 pm

Bonds in your taxable accounts are not terrible, just not quite as efficient as having them in a tax advantaged account. Vanguard Total Bond market VBTLX is probably their most popular bond fund. This would be fine if you are in the 22% tax bracket or lower. If you are in a higher tax bracket you might consider a tax free municipal bond fund like VWITX. Dividends on this are federaly tax free, but state taxes would likely still be charged.

I would fill up my limited Roth space each year before investing in a taxable account. Both are funded with after tax dollars. The difference is any gains in the Roth (dividends and price appreciation) are tax free. Gains in your taxable account will likely be sold with long term capital gains taxes applied. Long term capital gains taxes are lower than ordinary income tax, but not as good as tax free.

jonbkray
Posts: 17
Joined: Wed Jun 20, 2018 11:01 am

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Fri Jun 22, 2018 7:07 am

Thanks guys,

I've narrowed it down to 2 choices based on all of your help!

I guess what I could do is:

1) Keep the target date 2035 fund I have now, because if I sell it i'll get taxed. Its about 77% stock now and 23% bond; a little more conservative. (Very similar to the LS Growth Fund which is 80/20)
I would save up until my $4500 grows to 11,000 and then divide that into:
-Total Stock
-International Stock
-and US Bonds

It's either that, or:

2) Just selling my TD fund now and buying the Total Stock market fund and then letting that keep grow until I have more money to invest in the bond funds..

What do you think?

jonbkray
Posts: 17
Joined: Wed Jun 20, 2018 11:01 am

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by jonbkray » Fri Jun 22, 2018 8:07 am

Anyone?

MNGopher
Posts: 278
Joined: Tue Jun 16, 2015 1:44 pm

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by MNGopher » Fri Jun 22, 2018 8:46 am

In a taxable account, I would probably go with your #2 option, for reasons dbr mentioned earlier.

At your age I would still be filling your Roth space before taxable, unless you think your work income is already near it's peak.

guyesmith
Posts: 200
Joined: Fri Mar 23, 2018 11:16 am

Re: Life Strategy Growth Fund, Target Fund, or Total Stock Market

Post by guyesmith » Fri Jun 22, 2018 10:16 am

1. Choose the allocation that best meets your goals and pay taxes when you make money/incur gains.

Or, if you don't like paying taxes, stop making money and apply for Social Security.

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