First time investors at 53

[Lefthanded]

Hello, we are new to the Bogleheads forum and investing. This is our first post. We are following Laura’s suggestions and below is the result.

Investments accounting

Emergency funds: $150,000 (for one year, due to the nature of our career)

Debt: $230,300 (mortgage + escrow, at 4.49%)

Tax Filing Status: Married Filing Jointly

Tax Rate: 35% (we estimated, could change yearly) Federal, 0% State

State of Residence: Texas

Age: 53 & 52

Desired Asset allocation:
50% stocks / 50% bonds
Desired International allocation: 35% of stocks
(Rough estimates)

Please provide an approximate size of your total portfolio $1M

Current retirement assets

Taxable
78.2% (for investing – do not include emergency funds)
7.9% stock Fidelity (SPAXX)
.7% stock Fidelity (NWSA)

His 401k
1.2% Vanguard Target Retirement 2035 (VTTHX) (expense ratio: 0.08%)
Company match? No
10.2% American Funds 2035 Target Date Retirement FD CL R6 (RFFTX) (expense ratio?)
Company match? No
1.8% American Funds 2040 Target Date Retirement FD CL R6 (RFGTX) (expense ratio?)
Company match? No

Her Traditional IRA
0% ( plan to create one - 7,500.00 ) most likely WF
_______________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Contributions

New annual Contributions
$13,280 his 401(k)
$7,500 her Traditional IRA
$7,500 his Traditional IRA
$xx taxable (for retirement, not short-term goals) We don’t understand this.

Available funds

Funds available in his 401(k)
Vanguard Target Retirement 2035 (VTTHX) (expense ratio: 0.08%)
American Funds 2035 Target Date Retirement FD CL R6 (RFFTX) (expense ratio?)
American Funds 2040 Target Date Retirement FD CL R6 (RFGTX) (expense ratio?)

Questions:
1. (His question) We are thinking of investing $1,000,000 in 5 phases: $200,000 every 3 months. Would the following breakdown be “wise”, considering the current market?
a. 32.5% U.S. stocks
b. 17.5% international stocks
c. 40% U.S. bonds
d. 10% foreign bonds

2. (Her question) Opinions about using Wells Fargo advisors with First Clearing. We met with a Wells Fargo advisor where we bank. ( I like knowing the bankers/advisors and meeting in person.) I said we want a fiduciary advisor and may not want to buy investment products with a bank. He said the advisor was not an advisor with WF, but with First Clearing. Should I not invest with a bank? Why? How do you reduce fees if you use an advisor with a bank? Will an advisor also take your advice or explain why not?

3. (Her question) What kinds of investments are good to do with a bank, for example, is a traditional IRA ok to do with your bank instead of an investment firm?

4. (His question) Is there any advantage to investing anything through Wells Fargo, or investing with Vanguard/Fidelity/Schwab is the way to go?

5. (His question) What should we roll over the different 401(k)s into? It seems IRA is a great option, but we are overwhelmed by the different choices. How should we decide if it should be stocks vs bonds vs CDs vs ETFs vs mutual funds?

6. (Her question) Should we use an advisor, robo advisor, or do it ourselves?

This was our first experience with the details of investing and took quite a while to answer the questions above, which was a great learning experience. Thank you for helping us get started!

[retiredjg]

Hello, we are new to the Bogleheads forum and investing. This is our first post. We are following Laura’s suggestions and below is the result.

Welcome to the forum and thank you for posting according to the suggested format. It makes is so much easier to understand your situation and offer reasonable suggestions.

Age: 53 & 52

Desired Asset allocation:
50% stocks / 50% bonds
Desired International allocation: 35% of stocks
(Rough estimates)

This is a reasonable desired asset allocation if you are conservative investors. Considering that you have near $1 million in uninvested cash, that might be an appropriate description. If you do not consider yourselves financially conservative, you might want to increase the stock percentage some.

Personally, I think it is a fine goal for first time investors who have a lot of money to invest. You might find it quite unbearable to lose $300k to $500k of your savings at your ages without having had some previous experience with that kind of gut wrenching turmoil and a smaller amount to lose.

Her Traditional IRA
0% ( plan to create one - 7,500.00 ) most likely WF

Ordinarily, I would suggest avoiding a traditional IRA since your contributions would be non-deductible. However, you need a good space to hold bonds and a traditional IRA is perfect for that.

You did not mention a tIRA for Him although you intend to contribute to one. Is there already a tIRA that didn't get mentioned?

People are going to come along and suggest you use the backdoor Roth process to contribute to Roth IRA. In your case, I believe that would be a mistake.

Contributions

New annual Contributions
$13,280 his 401(k)
$7,500 her Traditional IRA
$7,500 his Traditional IRA
$xx taxable (for retirement, not short-term goals) We don’t understand this.

It means....How much do you intend to save in an ordinary brokerage account for retirement?

Is there a reason to save only $13k in his 401k instead of the maximum?

Available funds

Funds available in his 401(k)
Vanguard Target Retirement 2035 (VTTHX) (expense ratio: 0.08%)
American Funds 2035 Target Date Retirement FD CL R6 (RFFTX) (expense ratio?)
American Funds 2040 Target Date Retirement FD CL R6 (RFGTX) (expense ratio?)

What you need to hold in the 401k is a bond fund. This is because your 401k is small and the taxable account is large. Bonds are best held in a tax-deferred account (like a 401k or tIRA) because they are more "tax-efficient" there. It has to do with how bond income is taxed compared to how stock income is taxed.

What are the bond funds available in this 401k?

1. (His question) We are thinking of investing $1,000,000 in 5 phases: $200,000 every 3 months. Would the following breakdown be “wise”, considering the current market?
a. 32.5% U.S. stocks
b. 17.5% international stocks
c. 40% U.S. bonds
d. 10% foreign bonds

As written, this is probably not going to work for you because of the "space" available in the 401k, His and Her tIRA. The only way to get 50% in bonds is to fill the 401k, His tIRA and Her tIRA with bonds and let the rest of the bonds spill over into the taxable account. In the taxable account, you will need to hold tax-exempt bonds (because of your high tax bracket) and those will only be US bonds (not foreign). I'll show you what I mean in an example later. Long story short, foreign bonds can be nice to have if you want them, but I don't think you will have the space to hold them without giving up something more important.

2. (Her question) Opinions about using Wells Fargo advisors with First Clearing. We met with a Wells Fargo advisor where we bank. ( I like knowing the bankers/advisors and meeting in person.) I said we want a fiduciary advisor and may not want to buy investment products with a bank. He said the advisor was not an advisor with WF, but with First Clearing. Should I not invest with a bank? Why? How do you reduce fees if you use an advisor with a bank? Will an advisor also take your advice or explain why not?

There are very few people here who will suggest you use an advisor, especially one at a bank. They are in the banking business, not the "help our customers" business. It's just a cruel fact.

3. (Her question) What kinds of investments are good to do with a bank, for example, is a traditional IRA ok to do with your bank instead of an investment firm?

I do not recommend it at all unless you are considering holding CDs in your tIRA (which would be fine at current rates). Banks tend to suggest high cost products. You want low cost products and you don't want to pay an advisor to sell you high cost stuff you don't want or need.

4. (His question) Is there any advantage to investing anything through Wells Fargo, or investing with Vanguard/Fidelity/Schwab is the way to go?

For anything other than CDs, nobody here is likely to suggest "investing" with a bank. Vanguard/Fidelity/Shcwab are all good choices.

5. (His question) What should we roll over the different 401(k)s into? It seems IRA is a great option, but we are overwhelmed by the different choices. How should we decide if it should be stocks vs bonds vs CDs vs ETFs vs mutual funds?

What "different" 401ks do you have? Right now, you have only listed a small His 401k. Are there other 401ks? If yes, we need to know about all of them.

6. (Her question) Should we use an advisor, robo advisor, or do it ourselves?

Do it yourself. Investing can be very simple. You will have to learn some things and it can seem overwhelming at first, but you do not need to be a financial genius to do this. Not at all.

This was our first experience with the details of investing and took quite a while to answer the questions above, which was a great learning experience. Thank you for helping us get started!

Many people have commented that putting their information into the format was a great learning experience.


To start your financial education, I suggest you start at the Getting Started link in the Bogleheads' Wiki. This will take some time. That's fine. There is no hurry. https://www.bogleheads.org/wiki/Main_Page

[retiredjg]

Assuming what you have listed is all you have, here is what a simple portfolio could look like (after all the money is invested).

Taxable 86.8%
32.5% Total Stock Index such as Fidelity FSKAX
17.5% Total International Index such as Fidelity FTIHX
36.8% Tax exempt bond fund


His 401k 13.2%
13.2% best bond fund


Her Traditional IRA
0% for now Total Bond Market such as Fidelity FXNAX

His Traditional IRA
0% for now Total Bond Market such as Fidelity FXNAX

Since you are already at Fidelity, I would use Fidelity Funds (but do not use the "zero" funds in the taxable account).

However, I don't think Fido has any good (low cost) tax-exempt bond mutual funds so that one might need to be an ETF (exchange traded fund) from Vanguard or iShares or someone else.

People here can help you pick the funds or ETFs. Mutual funds and ETFs work a little differently from each other. You may find you have a preference for one over the other. Either is fine.

[Mr.BB]

"I said we want a fiduciary advisor and may not want to buy investment products with a bank". He said "the advisor was not an advisor with WF, but with First Clearing."
If you notice, he did not say the advisor was a fiduciary. He basically skirted the question. Odds are they are not fiduciaries. You are probably better off finding a Fee-Only advisor. Someone you can meet in person and they don't' try to sell you any commissioned products.

[Lefthanded]

Thanks so very much for your feedback, retiredjg and Mr.BB! retiredjg and Mr.BB, We had to take some time to think about and research your suggestions. 
Your feedback is very valuable! 
It is reassuring to hear that it is not preferable to invest through a bank, something we have heard before.

To make sense of our numbers, we have approximately $1M to invest from a recent windfall, and not from a salary. Therefore, in the future, we will not be able to contribute as much. This should explain why the 401(k) seems small compared to the windfall (question 5.) Another factor is that we started the 401(k) late in the game, and have not accrued much. We will think about maximizing the 401k, though that would mean one person's money will go into the other spouse's 401K. 

Age: 53 & 52

Desired Asset allocation: 
50% stocks / 50% bonds
Desired International allocation: 35% of stocks
(Rough estimates)

This is a reasonable desired asset allocation if you are conservative investors. Considering that you have near $1 million in uninvested cash, that might be an appropriate description. If you do not consider yourselves financially conservative, you might want to increase the stock percentage some.  

Personally, I think it is a fine goal for first-time investors who have a lot of money to invest. You might find it quite unbearable to lose $300k to $500k of your savings at your ages without having had some previous experience with that kind of gut wrenching turmoil and a smaller amount to lose.

Yes, we have heard you have to just stick it out, but it would be scary with only 15–20 years before we want to retire. We may end up doing something like this because we both don't plan to retire around 65 depending on health and work status. Getting laid off is a high possibility.

Her Traditional IRA
0% ( plan to create one - 7,500.00 ) most likely WF 

Ordinarily, I would suggest avoiding a traditional IRA since your contributions would be non-deductible. However, you need a good space to hold bonds and a traditional IRA is perfect for that.

You did not mention a tIRA for Him although you intend to contribute to one. Is there already a tIRA that didn't get mentioned?

People are going to come along and suggest you use the backdoor Roth process to contribute to Roth IRA. In your case, I believe that would be a mistake.

Good to hear, retiredjg. The tIRA was suggested by our newly acquired accountant because 2023 will be a tax-heavy year. Excited to hear that suggestion reinforced, and also that bonds can/should be held in a tIRA or a 401K. This may be the first thing we do.

Available funds

Funds available in his 401(k)
Vanguard Target Retirement 2035 (VTTHX) (expense ratio: 0.08%)
American Funds 2035 Target Date Retirement FD CL R6 (RFFTX) (expense ratio?)
American Funds 2040 Target Date Retirement FD CL R6 (RFGTX) (expense ratio?)

What you need to hold in the 401k is a bond fund. This is because your 401k is small and the taxable account is large. Bonds are best held in a tax-deferred account (like a 401k or tIRA) because they are more "tax-efficient" there. It has to do with how bond income is taxed compared to how stock income is taxed.

What are the bond funds available in this 401k?

We will look into what bond funds are available for the 401(k). 

We do want to make the most of what we invest. The latest thinking is to allocate in the following order for the most return (something we are still unsure of), considering that currently we have a small 401(k) and no IRA:
1.5% tIRA ($7,500 x 2, maximum)
38.5% total U.S. stock index
16.5% total international stock index
40.5% tax-exempt bond fund
3% 401(k) ($30,000, maximum)
Will this make sense?

I'm sure we will be back on the forum asking more questions as they come up.
Thank you again for your insight. 

[retiredjg]

We will think about maximizing the 401k, though that would mean one person's money will go into the other spouse's 401K. 

This brings up a different question. Does the windfall actually belong to one of you? Sometimes couples want to just fold it all into "ours". Other times, there are reasons to keep money separate. What is causing "on person's money" to go into the "other spouse's 401k"?

If keeping that money separate is important, you need to tell us that because that might mean investing and handling it differently.

Adding on to that question, if you are in the 35% tax bracket, filling a 401k (and other accounts as well) should be easy. Why isn't the 401k being filled directly from the working person's salary?

Yes, we have heard you have to just stick it out, but it would be scary with only 15–20 years before we want to retire. We may end up doing something like this because we both don't plan to retire around 65 depending on health and work status. Getting laid off is a high possibility.

Are you both working? If yes, does She not have a retirement plan at work?

Good to hear, retiredjg. The tIRA was suggested by our newly acquired accountant because 2023 will be a tax-heavy year. Excited to hear that suggestion reinforced, and also that bonds can/should be held in a tIRA or a 401K. This may be the first thing we do.

There's a bit of a misunderstanding here. Contributing to tIRA will have no effect on your heavy tax year. Your income is too high for a contribution to tIRA to be deducted from your taxable income.

We do want to make the most of what we invest. The latest thinking is to allocate in the following order for the most return (something we are still unsure of), considering that currently we have a small 401(k) and no IRA:
1.5% tIRA ($7,500 x 2, maximum)
38.5% total U.S. stock index
16.5% total international stock index
40.5% tax-exempt bond fund
3% 401(k) ($30,000, maximum)
Will this make sense?

Sorry, I'm not understanding what all this means. Try again?


I'm still not understanding Q#5. It asks "What should we roll over the different 401ks into? There is only 1 401k listed. Are there other 401k? Why are you asking about a rollover to IRA if you are still working at that employer?

[ruralavalon]

Welcome to the forum .

What funds are offered in his current employer's 401k plan? Please give fund names, tickers and expense ratios.

Does he have old 401k accounts from former employers?

Is she employed, if so is a plan offered at that job?

I suggest using accounts at a low cost fund provider like Vanguard, Fidelity or Schwab. I suggest not using a bank for investing, other than perhaps for CDs.

[Lefthanded]

Thank you for your replies, retiredjg and ruralavalon. My apology for the density of this post, as we are still confused right now (but better than a week ago, thanks to all of you.)

We will think about maximizing the 401k, though that would mean one person's money will go into the other spouse's 401K.

retiredjg: This brings up a different question. Does the windfall actually belong to one of you? Sometimes couples want to just fold it all into "ours". Other times, there are reasons to keep money separate. What is causing "on person's money" to go into the "other spouse's 401k"?

If keeping that money separate is important, you need to tell us that because that might mean investing and handling it differently.

Adding on to that question, if you are in the 35% tax bracket, filling a 401k (and other accounts as well) should be easy. Why isn't the 401k being filled directly from the working person's salary?

Yes, the windfall belongs to her. And yes, we want to fold it all into “ours." The reason we previously planned for her money to go to his 401(k) is because his salary is low, compared to the household spending (kids, college, fixing home, etc.) However, for now we feel that he will keep his 401(k) allocation as it is.

Yes, we have heard you have to just stick it out, but it would be scary with only 15–20 years before we want to retire. We may end up doing something like this because we both don't plan to retire around 65 depending on health and work status. Getting laid off is a high possibility.

retiredjg: Are you both working? If yes, does She not have a retirement plan at work?

No, currently she is not employed & no retirement plan, but has an income from some recently-acquired mineral rights. He is employed with 401(k).

Good to hear, retiredjg. The tIRA was suggested by our newly acquired accountant because 2023 will be a tax-heavy year. Excited to hear that suggestion reinforced, and also that bonds can/should be held in a tIRA or a 401K. This may be the first thing we do.

retiredjg: There's a bit of a misunderstanding here. Contributing to tIRA will have no effect on your heavy tax year. Your income is too high for a contribution to tIRA to be deducted from your taxable income.

Thank you for catching that, retiredjg. We agree and understand that now.

We do want to make the most of what we invest. The latest thinking is to allocate in the following order for the most return (something we are still unsure of), considering that currently we have a small 401(k) and no IRA:
1.5% tIRA ($7,500 x 2, maximum)
38.5% total U.S. stock index
16.5% total international stock index
40.5% tax-exempt bond fund
3% 401(k) ($30,000, maximum)
Will this make sense?

retiredjg: Sorry, I'm not understanding what all this means. Try again?

We don’t really understand either. But from the original breakdown that Laura suggested, we are trying to allocate our investment. The main thing that we are trying to figure out is if we need to be more aggressive. Should it be 60/40, 55/45, or 50/50? And is this the correct sequence of ROI:
a. tIRA
b. 401(k)
c. U.S. stock index
d. International stock index
e. Tax-exempt bond fund


retiredjg: I'm still not understanding Q#5. It asks "What should we roll over the different 401ks into? There is only 1 401k listed. Are there other 401k? Why are you asking about a rollover to IRA if you are still working at that employer?
ruralavalon: What funds are offered in his current employer's 401k plan? Please give fund names, tickers and expense ratios.
Does he have old 401k accounts from former employers?

Sorry, retiredjg,I think my #5 question stemmed from our personal lack of understanding. Let’s ignore this original question.

ruralavalon: there are 3 401(k)s that we may try to consolidate them to 1 401(k). Do you have a recommendation?
- (current) 1.2% Vanguard Target Retirement 2035 (VTTHX) (expense ratio: 0.08%) Company match? No
- (old) 10.2% American Funds 2035 Target Date Retirement FD CL R6 (RFFTX) (expense ratio?) Company match? No (Planning to rollover into the current 401(k) above.)
- (old) 1.8% American Funds 2040 Target Date Retirement FD CL R6 (RFGTX) (expense ratio?) Company match? No (Planning to rollover into the current 401(k) above.)

Again, thank you for going through the details with us. We are a bit overwhelmed by the number of choices and the abundance of knowledge we still need to catch up.

[Wiggums]

Consider paying off mortgage “$230,300 (mortgage + escrow, at 4.49%)” using windfall and then invest former mortgage payment amount into the market each month.

Are in the 35% tax bracket due to the windfall or W2 income? She is not working and his salary is low and can cannot max out 401k.
I am misunderstanding something.

Edit:
Managing a windfall
https://www.bogleheads.org/wiki/Managing_a_windfall

[ruralavalon]

Rollover of old 402ks.

5. (His question) What should we roll over the different 401(k)s into? It seems IRA is a great option, but we are overwhelmed by the different choices. How should we decide if it should be stocks vs bonds vs CDs vs ETFs vs mutual funds?

ruralavalon: there are 3 401(k)s that we may try to consolidate them to 1 401(k). Do you have a recommendation?
- (current) 1.2% Vanguard Target Retirement 2035 (VTTHX) (expense ratio: 0.08%) Company match? No
- (old) 10.2% American Funds 2035 Target Date Retirement FD CL R6 (RFFTX) (expense ratio?) Company match? No (Planning to rollover into the current 401(k) above.)
- (old) 1.8% American Funds 2040 Target Date Retirement FD CL R6 (RFGTX) (expense ratio?) Company match? No (Planning to rollover into the current 401(k) above.)

If the current employer's plan offers good funds with low expense ratios, and no additional fees required of the plan participants (or only small additional fees), then a rollover of the old 401k accounts into the current employer's plan is probably better than rollover I to an IRA.

What funds are offered in the current employer's plan? Please give fund names, tickers and expense ratios. Are any additional fees charged to the plan participants, if so how much?


Contributions to tax-advantaged accounts.

Tax Rate: 35% (we estimated, could change yearly) Federal, 0% State

. . . . .

Age: 53 & 52

. . . . .

New annual Contributions
$13,280 his 401(k)
$7,500 her Traditional IRA
$7,500 his Traditional IRA
$xx taxable (for retirement, not short-term goals) We don’t understand this.

At your level of income you cannot deduct contributions to IRAs.

I suggest maximum annual employee deferrals ($22.5k +$6.5k catch up = $29k annually) to his 401k account.

Does his employer's plan contain the features for a Mega-backdoor Roth? TFB blog post, The Elusive Mega Backdoor Roth.

1. whether your employer’s 401k/403b plan allows non-Roth after-tax contributions; and

2a. if it does, whether such contributions can be distributed while you are still working there (“in-service distribution”); or
2b. if the plan also offers a Roth 401k option, whether the non-Roth after-tax contributions can be rolled over to the Roth 401k part of the plan (“in-plan Roth rollover”)

Asset allocation.

. . . we are trying to allocate our investment. The main thing that we are trying to figure out is if we need to be more aggressive. Should it be 60/40, 55/45, or 50/50? . . .

In my opinion an asset allocation anywhere in that range would be reasonable.

[yatesd]

Hello, welcome to the forum!

I won't comment necessarily on your specifics but offer some general recommendations.

- No need to rush
- Yes, I would choose Vanguard, Schwab, or Fidelity based on my knowledge
- Might want to consider a Target fund from any of these brokerages. IMHO this helps you avoid over thinking anything or changing your mind over time, especially based on your experience.
- For all intents and purposes, ETF and Funds are so similar it almost doesn't matter. Focus on low costs.
- Based on your experience and the moving parts you are managing, it is relatively safe to recommend paying Vanguard or Schwab to manage your money with either of these tools (not Fidelity or Schwab full service):
-- Vanguard Personal Advisory Service (PAS) .3% of asset fee to "help" you but 70% less expensive than other options
-- Schwab Premium Intelligent Portfolio Premium. $360 per year to have an advisor to help, Robo advisor to automatically manage account. Based on the size of your portfolio and your age where some cash is reasonable, this could be less expensive.

https://investor.vanguard.com/advice/pe ... al-advisor

https://www.schwab.com/intelligent-portfolios-premium

[zero_coupon]

We do want to make the most of what we invest. The latest thinking is to allocate in the following order for the most return (something we are still unsure of), considering that currently we have a small 401(k) and no IRA:
1.5% tIRA ($7,500 x 2, maximum)
38.5% total U.S. stock index
16.5% total international stock index
40.5% tax-exempt bond fund
3% 401(k) ($30,000, maximum)
Will this make sense?

retiredjg: Sorry, I'm not understanding what all this means. Try again?

We don’t really understand either. But from the original breakdown that Laura suggested, we are trying to allocate our investment. The main thing that we are trying to figure out is if we need to be more aggressive. Should it be 60/40, 55/45, or 50/50? And is this the correct sequence of ROI:
a. tIRA
b. 401(k)
c. U.S. stock index
d. International stock index
e. Tax-exempt bond fund

Hi there. You seem like nice people who are trying hard to learn about DIY investing, which is great.

Just thought I'd chime in to mention, in case it's not quite clear to you, that each of your ACCOUNT TYPES (401(k), tIRA, taxable) will be used to hold various ASSET TYPES (domestic/int'l stock funds or ETFs, bond funds or ETFs, individual bonds/CDs, etc.).

Thus your portfolio consists of several accounts, which obviously "divide" the portfolio into "pieces." But separately from this, you will select an asset allocation (percentages of US stock, int'l stock, bonds, etc.), which also "divides" your portfolio into "pieces." This asset allocation is selected mostly without consideration of what types of accounts you have. However, after selecting your asset allocation, you'll decide how to place each component (e.g. bonds) into the most suitable account, based on tax considerations.

I think you already understand this, but you were oddly stating that you plan to allocate some money to your tIRA and some money to US stocks, which doesn't really make sense. tIRA is a type of account, and US stocks is a type of asset that you can hold in an account.

[retiredjg]

We don’t really understand either. But from the original breakdown that Laura suggested, we are trying to allocate our investment. The main thing that we are trying to figure out is if we need to be more aggressive. Should it be 60/40, 55/45, or 50/50?

For people your age with little investing experience, I suggest going in at 50:50. After a few years, you may or may not wish to increase it a little after you get accustomed to how things work. On the other hand, if you want 55/45 or 60/40 now, that does not sound too risky to me.

I think your plan to invest $200k every 3 months is reasonable. The important thing about the plan is to stick to whatever you decide to do. Every 3 months is the time to invest. It is not the time to consider if you want to invest. In other words, don't make a new decision every 3 months. That decision is already made. Just follow the plan. As you are adding money, try to get close to your 50:50 from the beginning.

And is this the correct sequence of ROI:
a. tIRA
b. 401(k)
c. U.S. stock index
d. International stock index
e. Tax-exempt bond fund

I don't really understand what you mean by "correct sequence of ROI". But I do think that investing in the tIRAs is a good thing to do first. And increase the contribution to 401k. Do go ahead and start putting money into the taxable account.

: there are 3 401(k)s that we may try to consolidate them to 1 401(k). Do you have a recommendation?
- (current) 1.2% Vanguard Target Retirement 2035 (VTTHX) (expense ratio: 0.08%) Company match? No
- (old) 10.2% American Funds 2035 Target Date Retirement FD CL R6 (RFFTX) (expense ratio?) Company match? No (Planning to rollover into the current 401(k) above.)
- (old) 1.8% American Funds 2040 Target Date Retirement FD CL R6 (RFGTX) (expense ratio?) Company match? No (Planning to rollover into the current 401(k) above.)

I did not understand there were actually 3 separate 401k accounts at different employers. Yes, roll the two old ones into the new 401k.

Have you found out what the bond funds available in the new 401k are?

[Lefthanded]

Hello Wiggums, ruralavalon, yatesd, zero_coupon, and retiredjg. Thank you so much for your comments and insights!

Wiggums - Her here: the 35% tax bracket is a guesstimate based on the addition of the windfall plus future ‘mailbox money’ which can/will fluctuate and eventually cease. We could max out the 401(k), not sure what our reasoning was. We may be overthinking and confusing ourselves at times.

You definitely got us thinking about paying off the mortgage (great idea) and it most likely is good for us, because, we don’t have to worry as much about a reduced liquidity. I just did a little research and will check out if there is any prepayment penalty vs. loss of tax deduction.

Paying so much interest seems no bueno. Paying off the house feels like a safe bet. This is a tangible simple way to invest that doesn't require too much research to figure out.


ruralavalon, great advice and we agree! Other funds that are offered by the current employer’s plan are:
Vanguard Target Retirement 2020 - VTWNX - 0.08%
Vanguard Target Retirement 2055 - VFFVX - 0.08%
Vanguard Total Bond Market Index - VBTLX - 0.05%
Vanguard Target Retirement 2030 - VTHRX - 0.08%
Vanguard Short-Term Bond Index - VBIRX - 0.07%
Vanguard Target Retirement 2060 - VTTSX - 0.08%
Vanguard Target Retirement 2045 - VTIVX - 0.08%
Vanguard Target Retirement 2050 - VFIFX - 0.08%
Vanguard Inflation-Protected Securities - VAIPX - 0.10%
Schwab S&P 500 Index - SWPPX - 0.02%
Vanguard Target Retirement Income - VTINX - 0.08%
Vanguard Target Retirement 2025 - VTTVX - 0.08%
Vanguard Target Retirement 2040 - VFORX - 0.08%
Vanguard Target Retirement 2065 - VLXVX - 0.08%
Fidelity Total Market Index - FSKAX - 0.02%
Fidelity Mid Cap Index - FSMDX - 0.03%
Fidelity Small Cap Index - FSSNX - 0.02%
iShares ESG Aware - ESML - 0.17%
Calvert Mid-Cap Core Responsible - CMJIX - 0.24%
Fidelity International Sustainability - FNIDX - 0.20%
Vanguard Social Index - VFTAX - 0.14%
Fidelity Sustainability Bond - FNDSX - 0.10%
Vanguard Total International Stock Index - VTIAX - 0.11%
Vanguard Treasury Money Market - VUSXX - 0.09%
Vanguard Target Retirement 2035 - VTTHX - 0.08%

I believe the fees are already included in the expense ratio. We understand now, that we cannot deduct contributions to IRAs due to our level of income. We also agree to maximize his 401(k). Thank you!

We are not considering backdoor Roth right now, as it seems a bit too complicated for someone who is just starting to learn about investing. It also seems a bit controversial, but definitely worth understanding deeper, so that we can make the right decision in the future. Thanks for the links.


yatesd,

Her speaking: Thank you!
Your recommendations are very helpful and we are thinking them over. Good to know ETFs are similar to funds. We would like to simplify the process by concentrating on low cost, per your recommendation.

We most definitely have been overthinking. We may need a little help to manage things at first. I very much appreciate the suggestions and links you provided.


Hi, zero_coupon. Thank you for your kindness in detailing this for us. You were correct that we didn’t know what we were talking about. It becomes much clearer when you elaborated that there are Account Types, and each can hold different Asset Types. Now we see how oddly we wrote the allocations.


retiredjg,

Good to hear from you again. I feel like we are getting close. I agree the 50/50 or 55/45 allocations are reasonable, and I think we feel ready to go for it. Completely understand and agree that a decision required follow-through with quarterly investments. He is trying to figure out what bond funds are available with his 401(k) and will write post back soon. Thanks again, retiredjg!

[windaar]

I like the 50/50. I think for a lot of investors this is a good AA but many stick their necks out for a high equities % and then when a correction trims them they panic sell, then agonize about "getting back in," sealing in their losses.

[retiredjg]

Vanguard Total Bond Market Index - VBTLX - 0.05%

This is the fund to use in the 401k.

We are not considering backdoor Roth right now, as it seems a bit too complicated for someone who is just starting to learn about investing. It also seems a bit controversial, but definitely worth understanding deeper, so that we can make the right decision in the future. Thanks for the links.

Backdoor Roth is not the best choice for you in my opinion. You need space in tax-deferred accounts to hold bonds. A traditional IRA, even if you cannot deduct your contribution from your income, is a perfect place.

Yes, I know everyone else thinks that backdoor Roth is the best thing since sliced bread, but if you use backdoor Roth that will push more bonds into taxable. That is not necessarily a good thing.

[Moe Sanders]

Answers:

1. Nobody can answer this because nobody knows what the future holds. If you're going to be so conservative just invest it all in that Vanguard Wellesley Fund. Otherwise just dollar cost average into an sandp500 index fund maybe over a four year period which is pretty conservative. I don't believe in lump sum investing because by investing in index funds by their very nature you're implicitly saying you know nothing about owning businesses or timing. So just take it easy. Cash is paying a decent return right now.

2. Investing is very simple. It's a 99 percent emotional game once you figure out costs and tax efficiencies. You don't need to waste your money on advisors.

3. Open a Vanguard account.

4. No. Just use Vanguard.

5. If you have low fees and low cost index funds in your 401K, why are you worried about rolling anything over?

6. DIY all the way

Look, you are making this way too complicated. You don't need target date funds either. How the hell does some schmuck at vanguard know what percentage of international stocks or bonds to allocate and when? Just an excuse to charge a higher expense ratio for nothing in return IMO. just pick their total stock market fund and dollar cost average into it. Be prepared to for your fund to decrease in paper value by 50 percent several times in your life time and just withdraw a bit less in years when it's down or maybe don't and buy more! Over time American industry will do fine. The ownership claims to these companies will only grow in value over time. You can expect a compounded rate of real return of 3 to 4 percent over 20 years and anything more is just fantastic. Stick to it and believe in it. Investing is about conviction. Turn off the noise! CNBC and Bloomberg will teach you nothing. GDP will grow over time and so will corporate profits. And with index funds, you won't even have to care about which companies succeed and which don't.

[Lefthanded]

Thank you, windaar, retiredjg, and Moe Sanders; we truly appreciate your insight.

windaar: it seems that’s the wisdom of the crowd. Thank you. We don’t have to invest too aggressively and would rather play it a bit safer, considering that we are 50+.

retiredjg: we appreciate that you went through the list of funds, and will take your suggestion. Thank you.

Moe Sanders:
1. Agreed, index funds are there for people like us.
2, 3, 4. Ha ha… Thanks for the reassurance.
5. Right, we are no longer thinking about rolling it to IRA. Our current thinking is to consolidate the old 401(k)s to the current one so that there is only 1 account to manage.
We appreciate your feedback. Everything you said makes sense. We, too, like a simpler approach, having the control in our hands, and agree that we will just have to ride out our investment through various turmoil.

Alright, Bogleheads. We believe that we are ready to start investing. All of your comments have improved our knowledge tremendously. Again, thank you, and have a great week!

[placeholder]

Backdoor Roth is not the best choice for you in my opinion. You need space in tax-deferred accounts to hold bonds. A traditional IRA, even if you cannot deduct your contribution from your income, is a perfect place.

Yes, I know everyone else thinks that backdoor Roth is the best thing since sliced bread, but if you use backdoor Roth that will push more bonds into taxable. That is not necessarily a good thing.

I don't at all understand this as while bonds are a good choice for deferred space it doesn't cost anything for them to be in roth when the choice is either or not both which is the case with these iras so the ops should create the backdoor roths and use them for bonds then if at a later time they've improved the deferred space they can move the bonds there and put stocks in the roth.

[retiredjg]

Backdoor Roth is not the best choice for you in my opinion. You need space in tax-deferred accounts to hold bonds. A traditional IRA, even if you cannot deduct your contribution from your income, is a perfect place.

Yes, I know everyone else thinks that backdoor Roth is the best thing since sliced bread, but if you use backdoor Roth that will push more bonds into taxable. That is not necessarily a good thing.

I don't at all understand this as while bonds are a good choice for deferred space it doesn't cost anything for them to be in roth when the choice is either or not both which is the case with these iras so the ops should create the backdoor roths and use them for bonds then if at a later time they've improved the deferred space they can move the bonds there and put stocks in the roth.

Thanks for bringing this up. I have been mulling this over since I posted that and have mixed thoughts. There are pros and cons to both choices and I don't disagree with what you said.

As you pointed out, this is a case where the poster can either have some Roth space (filled with bonds) or not have the Roth space. Which is the "better choice"?

There is such an overwhelming push here at Bogleheads' to avoid holding bonds in Roth IRA, that keeping the IRA as traditional still makes some sense to me. But using the backdoor Roth process to "contribute" to Roth IRA also makes sense.

What would not make sense to me, in this case, is to put stock funds in the Roth IRA, pushing even more bond funds into taxable. I believe that would decrease the diversification of the bond allocation. I'm not opposed to holding bonds in taxable when needed. But holdiing most of your bond allocation in taxable (in the form of tax-exempt bonds) seems a poor choice to me when there are other options.

In this particular case, the poster is a new investor and already working hard to just learn the basics and get started on a good investing path. If I recall correctly (without reading the whole thread again) lefthanded is not currently eager to add the complexity of backdoor Roth to his/her current challenges. And there is no harm in that. A tIRA holding bond funds is not going to grow a lot and can be converted to Roth IRA later on without a large tax bill. In other words, the "backdoor" decision can be put off for a little while.

Lefthanded, if you make non-deductible contributions to tIRA, you do need to document this on Form 8606 on your taxes. This is the form that tells the IRS that money is already taxed. This is the form that keeps that money from being taxed a second time. It's an easy form to do, but many people overlook doing it, so don't make that mistake.

[HipCoyote]

People far smarter than me posted great advice in this this thread and I learned quite a lot from them. My only two cents is that, on occasion, we have used a fee only (hourly rate) advisor we found on whitecoat investor.com. (The whitecoat creator is a frequent contirbutor here.) That was very helpful. Similar advice as here, but we sent him a few statements, a few spread sheets and it gave us some confidence in our plan. I think we spent maybe $500 bucks over a few months.

There are also some fee only folks on this site who come recommended.

[Nowizard]

My suggestion starts with a hearty congratulations for joining the forum and a welcome to investing. You learned from preparing an excellent post, and you will now be exposed to a variety of considerations from very knowledgeable people on this wonderful site. Some will contradict others and reflect that investing approaches vary, that there are many that can work, and that ultimately your choices interact with your own circumstances.
Take it easy for awhile and continue with your evaluation of what you are learning. One of the first questions to answer is whether to proceed from sources like this and invest yourself or get advice from a paid professional. The suggestion of investing being "easy" to do yourself has been made, and it is accurate for many of us. However, it is also easy to make mistakes with complex topics, and we have all made them. With substantial assets, the leap from no investing to investing substantial sums is a large one. Using outside help comes in many forms, including what you are posting here. For example, seasoned investors considering establishing a Trust would be well advised to use a professional even though it is "easy" to use the Internet for advice and obtaining necessary forms to complete a POA, Living Will, bequeaths to heirs, etc. A one-time consult with a paid advisor to help distill your possible choices into concrete ones is an option. It is a choice that could eventually lead to taking on investing yourself. Your circumstances involve yourself and your wife, and there are likely to be some differences in how each of you approach major decisions. These comments are only meant to be for consideration of some factors that involve more personal aspects of investing in a different manner than in the past.

Tim

[little_star]

Backdoor Roth is not the best choice for you in my opinion. You need space in tax-deferred accounts to hold bonds. A traditional IRA, even if you cannot deduct your contribution from your income, is a perfect place.

Yes, I know everyone else thinks that backdoor Roth is the best thing since sliced bread, but if you use backdoor Roth that will push more bonds into taxable. That is not necessarily a good thing.

I don't at all understand this as while bonds are a good choice for deferred space it doesn't cost anything for them to be in roth when the choice is either or not both which is the case with these iras so the ops should create the backdoor roths and use them for bonds then if at a later time they've improved the deferred space they can move the bonds there and put stocks in the roth.

Thanks for bringing this up. I have been mulling this over since I posted that and have mixed thoughts. There are pros and cons to both choices and I don't disagree with what you said.

As you pointed out, this is a case where the poster can either have some Roth space (filled with bonds) or not have the Roth space. Which is the "better choice"?

There is such an overwhelming push here at Bogleheads' to avoid holding bonds in Roth IRA, that keeping the IRA as traditional still makes some sense to me. But using the backdoor Roth process to "contribute" to Roth IRA also makes sense.

What would not make sense to me, in this case, is to put stock funds in the Roth IRA, pushing even more bond funds into taxable. I believe that would decrease the diversification of the bond allocation. I'm not opposed to holding bonds in taxable when needed. But holdiing most of your bond allocation in taxable (in the form of tax-exempt bonds) seems a poor choice to me when there are other options.

In this particular case, the poster is a new investor and already working hard to just learn the basics and get started on a good investing path. If I recall correctly (without reading the whole thread again) lefthanded is not currently eager to add the complexity of backdoor Roth to his/her current challenges. And there is no harm in that. A tIRA holding bond funds is not going to grow a lot and can be converted to Roth IRA later on without a large tax bill. In other words, the "backdoor" decision can be put off for a little while.

Lefthanded, if you make non-deductible contributions to tIRA, you do need to document this on Form 8606 on your taxes. This is the form that tells the IRS that money is already taxed. This is the form that keeps that money from being taxed a second time. It's an easy form to do, but many people overlook doing it, so don't make that mistake.

I agree that the backdoor Roth process is not to be done until it is understood by the investor, but a categorical "I do not recommend" is misplaced here, I think. For one, it is perfectly fine to have bonds in a Roth IRA, if that is the only tax advantaged place to hold them. For two, if they have non-deductible contributions in a traditional IRA, they will be faced with pro rata calculations for any withdrawals in the future. Thus, being *aware* of the possibility of a backdoor Roth process can inform them of the potential consequences of rolling 401ks into traditional IRAs in the future. Specifically, it is one thing to have small growth from bond funds, where the majority of the tIRA balance is non-deductible contributions; it is another thing to have large pre-tax $$ and small non-deductible $$ in the traditional IRA accounts. They currently have *no* IRA accounts, so it is a good time to learn about these potential complications before starting something that they will have to track forever. Actually, given this, I think a backdoor Roth process is actually simpler than leaving the non-deductible contributions in the traditional IRA!

To the OP: You will need to track your non-deductible contributions on IRS Form 8606. If you choose to convert to Roth (step 2 of the backdoor Roth process), you will document that on IRS Form 8606 for the calendar year in which you do the conversion. You do not need to do both steps in the same year. However, you will be subject to a pro rata calculation if you have $$ in a traditional IRA on December 31 of the year in which you do the conversion. Thus, you should not roll your 401k $$ into a traditional IRA if you choose to make non-deductible contributions to a traditional IRA.

Other (random) thoughts:

1. If there is no concern about mixing income sources, then you should absolutely max-out pre-tax 401k contributions ($30k this year for people over 50) to reduce your total income and to use all available tax-advantaged space.
2. Regardless of whether you convert everything from traditional IRA to Roth IRA (which would be the backdoor Roth process), I recommend opening and funding (via conversion) a Roth IRA for each of you. Roth IRAs have various 5 year rules. Opening (and funding) Roth IRAs now will give you more flexibility in the future.
3. Investing doesn't have to be difficult. However, decisions made in taxable accounts can be expensive (tax-wise) to reverse in the future. The recommendations on this site to use low-cost, diversified mutual funds (or ETFs) from discount brokers such as Vanguard, Fidelity, or Schwab are good ones. A three fund portfolio (total stock, total bond, and total international stock) is simple and easy to set up. You simply need to decide on your asset allocation.
4. In addition to this site, you may have additional "free" resources at your disposal. Many 401k plans have consultants/advisors. It is perhaps worth asking HR if such services are available to you. I will add the caveat: you should always be a little wary of free advice, particularly if the consequence is that you will be giving more money to the one offering it! However, more information is often a good thing, as long as you are aware of the potential biases. Such a consultation may provide more information about fund choices in the plan and guidance about your overall asset allocation (based on risk assessment).

[retiredjg]

I agree that the backdoor Roth process is not to be done until it is understood by the investor, but a categorical "I do not recommend" is misplaced here, I think.

I agree and that is not what I said.

However, I quit "recommending" the backdoor Roth process (to anyone) many years ago when it became apparent that a good number of people are going to mess it up, one way or the other.

A "recommendation" is essentially sending a message that all is ok and everything will turn out all right. We all know that is not the case with backdoor Roth. I choose not to "recommend" things that predictably will fail/cause anguish for some of the people who try it.

Having said all that, if people show an interest on their own, I try to help, particularly if they are teaching themselves and ask questions. And obviously, for those people who post saying "how do I fix this?"

In this particular case, I think this poster has enough more important things to learn right now and this is something that can wait a little while. But that is just my opinion.

[ruralavalon]

My suggestion is to rollover the old 401k accounts into your current employer's 401k plan. The current employer's plan offers excellent, very diversified index funds with very low expense ratios.

Using a 60/40 asset allocation, with 25% of stocks in international stocks, an example portfolio could be something like this:

Taxable account @ Fidelity (87% of total, adds $??k annually)
45%, Fidelity Total Stock Market Index Fund (FSKAX) ER 0.015%
15%, Fidelity Total International Stock Index Fund (FTIHX) ER 0.06%
27%, Fidelity Municipal Bond Index Fund (FMBIX) ER 0.07%

401k account (13% of total; adds $29k annually)
00%, Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04%
00%, Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%
13%, Vanguard Total Bond Market Index Fund (VBTLX) ER 0.05%

All Percentages are rounded off. Sometimes I state 00% to indicate funds you might wish to add in the future.

Since your taxable account is with Fidelity you should read the wiki article on Fidelity

I suggest reading one or two good books on investing. Wiki article Book recommendations and reviews

I hope that this helps.

If you have any questions just ask.

[Lefthanded]

Thanks for the welcomes and your replies, placeholder, retiredjg, HipCoyote, Nowizard, little_star, & ruralavalon! We are glad to have a supportive community like Bogleheads.

placeholder, retiredjg, & little_star: regarding backdoor Roth, we have looked into it a bit and both of us agree that it is a bit too complicated for us for now. We will learn about backdoor Roth, and may apply it when we feel comfortable.

HipCoyote & little_star: we were thinking of getting some assistance directly from Vanguard/Fidelity, and we are glad to learn that there are other options. We’ll check out investor.com & his 401(k) service for sure. Thank you!

Nowizard: you are absolutely correct, that we are trying to avoid mistakes, and that’s why we are here. As you mentioned we all have made mistakes in investing, and we hope we can minimize the risk by learning from this forum. Thanks for keeping it real that we, too, will eventually make a mistake.

ruralavalon: thanks so much for breaking down a scenario. You made it easier for us to understand how to allocate the money. We’ll investigate a bit further about each index fund so that we can make the right decision. Much appreciated!

[Taylor Larimore]

We are thinking of investing $1,000,000 in 5 phases: $200,000 every 3 months. Would the following breakdown be “wise”, considering the current market?
a. 32.5% U.S. stocks
b. 17.5% international stocks
c. 40% U.S. bonds
d. 10% foreign bonds

lefthanded:

Consider the many benefits of The Three-Fund Portfolio.

Best wishes.
Taylor

Jack Bogle's Words of Wisdom: "The Three-Fund Portfolio will help you to develop a sound asset allocation strategy, make smart investment selections, and guide the implementation of your plan." -- "There may be better investment strategies than owning just three broad-based index funds but the number of strategies that are worse is infinite."