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  1. #27
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    Re: Advice for Roth and 401k

    Quote Originally Posted by Jessica4Bama View Post
    Goodness all this is confusing. Haha. The reason I worry about it is I'm single and I don't see myself ever marrying, so my income is what has to sustain me when I am old. One of my fears is living paycheck to paycheck and not being able to afford a house or retire or afford things I need and the list goes on. I'm not one who looks too far into the future. I am more of in the moment type of person, but the thought of not having enough money to live on in retirement strikes fear in me. I have always been one who has saved money. I currently have no debt, but will be looking for a house soon, which I am hoping to be able to put between 20-30% down. I do pay off my cards monthly, so no interest fees for me. But all this investing stuff really confuses me.
    You are on the right track, no debt with savings and retirement in place, you are way ahead of most Americans. Life, like dieting, is all about moderation, make a budget, stick with it and adjust as needed. You do not appear to be an extravagant person, but every once in a while you need some chocolate.
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  2. #28
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    Re: Advice for Roth and 401k

    Quote Originally Posted by Jessica4Bama View Post
    Also, on a side note that I thought was interesting. I recently watched a segment on the today show who had some financial guru. They said if you put away $200 a month starting at age 30 in a Roth IRA, by the time you are 70, it would have gained up to 1.2 million. I guess that is based on the current returns each year, which could go up or could go down. But I thought that was an interesting tidbit. A lot of 30 plus year olds may not be able to contribute that much, but it sure makes me want to invest what I can now while I am still in my early 30s.

    Yep! That assumes a 10% average return over 40 years. This is about the market average over the last 100+ years. That's history and nothing is guaranteed going forward (which is why I use 4% in my planning - especially since I'm older than you Since you're invested for the long term you really don't care what happens year-to-year so long as the market goes up over the next 40 years. If you could put $500/mo to max out your Roth and it "only" returned a 7% per year average over 40 years you would still get to your target. Then if the market ended up returning 10%, you'd have >$3million. Obviously, Roth wouldn't be your only investment as your salary increases. You'll have 401k, and at some point probably a 457b or 403b (similar to 401k with some different features / constraints), deferred comp, profit sharing, after tax (i.e. just going to Fidelity.com and buying funds), etc. Your commitment to starting now and continuing for the next 30+ years is what will get you to your goal.

    We've given you LOTS to consider. I know it's overwhelming. It's all based on experience (some good, some bad!) and market truths and solid research. Some of it is stream of consciousness from me (and thinking of others who might read this and benefit, as well). I'll try to boil down my thoughts here...

    To keep it simple:

    0) Read this: https://www.bogleheads.org/wiki/Bogl...g_start-up_kit . This is succinct and actionable.

    The key to understanding is educating yourself (Boglehead's first step). Most likely you, like me, will be confused the first time you read this stuff. So, you read more and more until it starts to make sense. But you don't wait to invest.

    In your 401k and/or Roth go ahead and put your contribution in a target fund (i.e. one that is called something like Fidelity 2050 Target Fund or whatever they call it). You can change it later to be aligned with what you learn. In a retirement fund, you don't have to worry about changes requiring you to pay taxes. [In an after-tax fund (i.e. at a broker) capital gains taxes must paid.]

    1) Decide how much you are willing to invest each month. At a minimum, contribute the 5% of your salary that will be matched at 50%.

    2) Decide your "risk tolerance." Some call this a 'sleep number' as in "what are you comfortable investing in equities (stocks) so that you can sleep at night without worrying what the market is doing." There are a bunch of theories on what the percentage should be, but the longer you have to invest (i.e. 30+ years is along time), the more your portfolio can tolerate ups and downs of the market - but this is a personal decision! Some suggestions are if you have a high risk tolerance, then have an aggressive equity allocation: 120 minus your age (or 110 if you're moderately aggressive or 100 if you're conservative). This is the percentage of your investment that should go into stocks funds the rest in bonds. So for moderately aggressive if you're 30 then 120-30 = 90, 110-30=80 etc).

    3) Decide your asset allocation (considering your risk tolerance). If you decided to be aggressive, 90% of your monthly contributions would go into equities and 10% into a bond fund. You should also decide if you want to do international stocks. I suggest you do to get complete diversity, but some folks (Jack Bogle included) said you don't need them.

    4) Decide which funds to buy (considering your asset allocation). If you choose to do the 3-fund portfolio, your breakdown might look like below.

    Here's an example of a moderately aggressive 3-fund portfolio allocation:

    80% in equities: of this 70% would be in a total stock market index and 30% in a total international stock market index.
    20% in bonds - in a total bond market index.

    I don't know what funds you have available in your 401k/roth/etc. but if it is Fidelity Funds, then each month (or paycheck) your contribution might be allocated into these 3 funds (again depending on which specific funds are available to you and your risk tolerance).

    This is based on an 80/20 split:

    56% in Fidelity Total Stock Market Index (FSTMX)
    24% in Fidelity Total International Stock Market index (FTIGX)
    20% in Fidelity Total Bond Fund(FTBFX)

    Alternatively, you could choose to keep it REALLY simple by choosing a target date fund for the year (approximately) you plan to retire. The fund manages the splits/allocations.

    4) Don't go with "whatever fund has been up the most in YTD/1/3/5/10 years". Choosing the total market path (either 3-fund or 1 target fund ) keeps it very simple. You set it and forget it and just check it every now and then. Don't buy expensive funds. Diversify by buying the total stock and total bond market. These are usually the cheapest funds available to you. Check out the The Callan Periodic Table of Investment Returns to understand how last year's winner is this year's loser (and vice versa) over last 20 years (and month-to-month)

    5) Stay the course! Don't worry about the market's ups and downs. 4Q has done a great job of detailing how his family approached this. Increase your investment amount as you can when you get raises, promotions, bonuses. Keep reading & learning.

    6) Retire comfortably



    4Q's advice regarding debt is outstanding. Wish I had considered this when I got my first real job and thought I was rich! Also, only "worry" about the things you can control: How much you save and how much you spend.
    Last edited by BamaNation; June 11th, 2019 at 09:19 AM.

  3. #29
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    Re: Advice for Roth and 401k

    Something else that helps is actually (and systematically) going through an analysis and documenting what you're doing and why.

    We do this in our Investment Policy Statement (IPS). You can find generic versions & templates on the internet at Bogleheads, Morningstar, Vanguard, etc. Our own (see attached template which contains our basic structure and some examples) takes what we think are the best parts from all of these and is mostly based on the Morningstar one and some Bogleheads examples.
    Attached Images Attached Images

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    Re: Advice for Roth and 401k

    It's also a good idea to determine what type lifestyle you want to keep when you retire. Granted, as young as you are this could change several times over the course of your life.

    This will dictate how aggressive and for how long you'll need to be over the lifetime of your investing. My aunt and uncle (who are very simple people) decided about halfway to retirement they didn't want as "lavish" of a lifestyle as they did when they first started planning. So they weren't as aggressive the last half of their careers. They changed gears a bit and decided to enjoy life a little more as they went rather than "maxing out" contributions all the way to retirement. They currently are entering retirement age, have paid off their house, they have zero credit card debt and zero car notes. I don't know how much money they forfeited by backing off their contributions halfway through their work careers. But as long as they are happy and content, they made the right choice.
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    Re: Advice for Roth and 401k

    Quote Originally Posted by BamaNation View Post
    5) Stay the course! Don't worry about the market's ups and downs. 4Q has done a great job of detailing how his family approached this. Increase your investment amount as you can when you get raises, promotions, bonuses. Keep reading & learning.

    6) Retire comfortably
    You've already done the single most important thing -- you got started young.

    Aside from that, unless it's literally a choice between investing vs. eating / keeping a roof over your head, the most important thing is not to stop. Not ever. No matter what noise the squawk box is spewing.

    Market swings are by definition temporary. They go up. They go down. Acknowledging scary periods of time, over the long term, there is a decided bias up. That bias up is what distinguishes investing from gambling.

    Make your plan. Adjust it periodically for life events -- marriage, children, taking in a relative, etc. But, no matter what's going on in the markets or how bad they look, don't let market fluctuations scare you into deviating from your plan. If you have the spare cash, invest more when there's blood in the streets....even if some of that blood is yours. You can never truly call yourself an investor until you've persevered through a bear market, and come out on the other end stronger emotionally, and even better off financially, than you were when it started.

    Believe me, I know how easy that is to say, and how hard it can be to do. It was first quarter of 2009, and I was doubting. So many talking heads were saying, "It's different this time." But so many more knowledgeable people were pointing out that the best deals are made in the worst of times. I gulped, closed my eyes real hard, and Mrs. Basket Case and I stayed the course. Want to know the irony of all that? Investing through The Great Recession and the ensuing recovery made it possible for me to retire.
    Last edited by 4Q Basket Case; June 11th, 2019 at 11:47 AM.
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  6. #32
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    Re: Advice for Roth and 401k

    Quote Originally Posted by 4Q Basket Case View Post
    You've already done the single most important thing -- you got started young.

    Aside from that, unless it's literally a choice between investing vs. eating / keeping a roof over your head, the most important thing is not to stop. Not ever. No matter what noise the squawk box is spewing.

    Market swings are by definition temporary. They go up. They go down. Acknowledging scary periods of time, over the long term, there is a decided bias up. That bias up is what distinguishes investing from gambling.

    Make your plan. Adjust it periodically for life events -- marriage, children, taking in a relative, etc. But, no matter what's going on in the markets or how bad they look, don't let market fluctuations scare you into deviating from your plan. If you have the spare cash, invest more when there's blood in the streets....even if some of that blood is yours. You can never truly call yourself an investor until you've persevered through a bear market, and come out on the other end stronger emotionally, and even better off financially, than you were when it started.

    Believe me, I know how easy that is to say, and how hard it can be to do. It was first quarter of 2009, and I was doubting. So many talking heads were saying, "It's different this time." But so many more knowledgeable people were pointing out that the best deals are made in the worst of times. I gulped, closed my eyes real hard, and Mrs. Basket Case and I stayed the course. Want to know the irony of all that? Investing through The Great Recession and the ensuing recovery made it possible for me to retire.
    Out of all the already great advice given, this is also very important. Never quit/give up. There will/may be times in your life when unexpected life events (job loss, cuts in pay etc.) forces you to go through a season of only being able to contribute $200/month rather than $500/month. Still put in. Something is better than nothing. Don't get discouraged. Keep putting in SOMETHING.
    The existence of God isn't determined in the thoughts of man. God exists, no matter what man thinks.

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  7. #33
    BamaNation Hall of Fame Bamaro's Avatar
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    ThumbsUp Re: Advice for Roth and 401k

    Jessica, I commend you on asking the right questions and trying to do the right thing! Keep up the good work!!!
    Too bad more people, a lot more people, aren't as disciplined as you.

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    Re: Advice for Roth and 401k

    Since weíve been discussing this, I wanted to link here to an article on whitecoatinvestor.com [WCI] today discussing this very topic:

    https://www.whitecoatinvestor.com/ro...-the-brackets/

    WCI is mostly written for high net income folks (itís written by and for doctors) but he does a great job in explaining details and giving good examples regardless of income level. Might be useful for some on here



    Sent from my iPad using Tapatalk

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    Advice for Roth and 401k

    To really simplify this, probably easier to just choose a target retirement date fund and let it reset the allocations for you automatically. Then you don't have to worry about allocations if that's all you have invested. Once you have additional investments (after tax, roth, IRA, etc) then you'll need to figure out your overall strategy. Get the match at least if offered.

    I'll also throw these short reads back out there:




    Just as an FYI example to show how powerful compounding and matching is (and not knowing any of your salary, etc)...

    If your salary is $50K/yr and you put 15% into 401k and your employer matches 50% of the first 6%, with a 2% average annual salary increase, a 7% annual return on average, in 30 years you'll have about $1.6 million.

    Contribute early, often, and continuously.
    Last edited by BamaNation; July 12th, 2019 at 12:34 PM.

  10. #36
    BamaNation Hall of Fame Jessica4Bama's Avatar
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    Re: Advice for Roth and 401k

    I decided to start out putting 8% into my 401K. I went with the Roth option because once I retire I will definitely be in a higher tax bracket than what I am now being nurses in Alabama doesn't make much starting out compared to other states. I was worried about putting 15% into it because I am looking to buy a house sooner rather than later. Maybe I should go ahead and put the 15% into it, but since nurses in Alabama don't make much money as a new grad, I was thinking 8% may be a happy medium. I need to be able to afford my house. LOL.

    Also, I had no idea how to allocate my funds, so Fidelity had a blended Vanguard target 2050 that I started with. Hope that is a good one to put my money into. It appeared to have a good track record from what I could see.
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    Re: Advice for Roth and 401k

    Quote Originally Posted by Jessica4Bama View Post
    I decided to start out putting 8% into my 401K. I went with the Roth option because once I retire I will definitely be in a higher tax bracket than what I am now being nurses in Alabama doesn't make much starting out compared to other states. I was worried about putting 15% into it because I am looking to buy a house sooner rather than later. Maybe I should go ahead and put the 15% into it, but since nurses in Alabama don't make much money as a new grad, I was thinking 8% may be a happy medium. I need to be able to afford my house. LOL.

    Also, I had no idea how to allocate my funds, so Fidelity had a blended Vanguard target 2050 that I started with. Hope that is a good one to put my money into. It appeared to have a good track record from what I could see.
    Especially while you're young and new to the plan, the targeted fund is a great choice. It'll be almost 100% stocks, which is what you want at your stage in life and career.

    That desired mix evolves as retirement approaches. So if the fund is managed correctly, its mix will likewise evolve accordingly, gradually trading out of stocks and into bonds and other less volatile instruments. That's a gradual process, taking place over a number of years, with the first baby steps starting for a 2050 fund around 2035 or 2040.

    Congratulations on asking the right questions, and taking action, all while you still have your most important asset...time. So many people put their fingers in their ears and hum. Then one day, they hit 40, and say, "Oh, [lots of non-TF words]....I've got to get started!!"

    Trouble is, they already frittered away the most powerful thing they had: their investing youth.

    The consequences are both unforgiving and incredibly sad. These are the guys who, when they hit 62-65, are going to their colleagues' retirement parties, saying they'll have to work until they drop. It's so sad because it's so avoidable.
    Last edited by 4Q Basket Case; July 15th, 2019 at 07:23 AM.
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    Re: Advice for Roth and 401k

    Well done!

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