Author Topic: Should I pull out my front-loaded IRA and transfer to, say, Betterment?  (Read 3416 times)

RocknRollFun

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Hi all! I've been learning as much about investing and consequentially Mustachiasm since coming into a windfall about a year and a half ago. Unfortunately the cart came before the horse so to speak, and a payout of 60K was put into an actively managed frontloaded IRA with a major investing business [who happens to hold our life insurance policies.]

Ok, I wish I could turn back time but I can't. It's been my mission since then to know what to do with my money and how to do it.

My question is, since I've already taken the hit for the front loaded fees would it still be worth it to transfer to a passively managed IRA like Betterment?

My rep will gleefully tell me that all I'm paying is 1% per year now, but I am aware I am paying much more than that in hidden fees per year, and that compounding fees are the Skeletor to the He-Man and She-Ra of compounding interest [insert "Darth Vader" and "Jedi Knights" if you're excited about the new movie and need a better metaphor.] I want to right this wrong and never be bamboozled by smooth-talking reps again. On a side note, you should have seen the panic in his face when I asked if there were any fees for moving the money away from them.

Thanks for any opinions!

pzxc

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Re: Should I pull out my front-loaded IRA and transfer to, say, Betterment?
« Reply #1 on: December 03, 2014, 09:05:59 AM »
http://en.wikipedia.org/wiki/Sunk_costs#Loss_aversion_and_the_sunk_cost_fallacy

Get out now.

(But you should consider transferring it to Vanguard to save even the 0.25% fee from Betterment.)

catccc

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Re: Should I pull out my front-loaded IRA and transfer to, say, Betterment?
« Reply #2 on: December 03, 2014, 09:09:04 AM »
I think you should pull out of your front loaded IRA, but I'm not sure betterment is the best bet.  I am personally a vanguard fan, myself.  There's been much debate on the topic of vanguard v. betterment recently due to MMM's betterment post, so poke around and decide what is best for you.  But you are right, it's probably going to be something besides your current front loaded plan.

Also, not sure how you feel about your life insurance policies, but typically anything besides term is overpriced and complicated.  I like to keep my investments and my insurance separate, it just is easier and more economical.  For me and my family, at least.

RocknRollFun

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Re: Should I pull out my front-loaded IRA and transfer to, say, Betterment?
« Reply #3 on: December 03, 2014, 09:16:03 AM »
http://en.wikipedia.org/wiki/Sunk_costs#Loss_aversion_and_the_sunk_cost_fallacy

Get out now.

(But you should consider transferring it to Vanguard to save even the 0.25% fee from Betterment.)

The push I need to make the shove, thanks man!

I've got about $5K in a Betterment account I started about a year ago, but have always wanted to look into Vanguard to diversify [hopefully.] If I may ask , do you like the Vanguard VASIX?

RocknRollFun

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Re: Should I pull out my front-loaded IRA and transfer to, say, Betterment?
« Reply #4 on: December 03, 2014, 09:23:32 AM »
I am personally a vanguard fan, myself. 
Thanks for the recommendation! I haven't looked close enough but I'm assuming it's easy to figure out my options when transferring [assuming I have any] to a Vanguard IRA?

Also, not sure how you feel about your life insurance policies, but typically anything besides term is overpriced and complicated.  I like to keep my investments and my insurance separate, it just is easier and more economical.  For me and my family, at least.
Our guy was just trying to get us to switch to permanent a couple of weeks ago. I'm sticking with term, and I'm glad to hear any reinforcements about that decision :) Appreciate it!

neo von retorch

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Re: Should I pull out my front-loaded IRA and transfer to, say, Betterment?
« Reply #5 on: December 03, 2014, 09:36:36 AM »
I've got about $5K in a Betterment account I started about a year ago, but have always wanted to look into Vanguard to diversify [hopefully.] If I may ask , do you like the Vanguard VASIX?

You probably already understand this, but just be sure that the concept of diversifying is to have a balanced variety of investment types. That is to say - domestic and international equities, bonds and real estate (the main examples - others may invest in commodities, precious metals, etc.) Betterment does this for you. To "add Vanguard" does not improve your diversity. If you went with Vanguard, you might want to consider the "3-fund portfolio" - three Vanguard index funds that cover equities, bonds, etc. It doesn't help to spread out your investments with multiple accounts/brokerages, though.

RocknRollFun

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Re: Should I pull out my front-loaded IRA and transfer to, say, Betterment?
« Reply #6 on: December 03, 2014, 09:57:48 AM »

You probably already understand this, but just be sure that the concept of diversifying is to have a balanced variety of investment types. [...] To "add Vanguard" does not improve your diversity. If you went with Vanguard, you might want to consider the "3-fund portfolio" - three Vanguard index funds that cover equities, bonds, etc. It doesn't help to spread out your investments with multiple accounts/brokerages, though.

I have an insatiable appetite to hear sound advice, even if I've heard it before. And I probably do [did] have the false assumption that different  index funds gave some diversification since the indexes followed might be somewhat different. Thanks for the recommendation and clarification.

milesdividendmd

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Re: Should I pull out my front-loaded IRA and transfer to, say, Betterment?
« Reply #7 on: December 03, 2014, 10:38:24 AM »
You will do well with either Betterment or Vanguard.

Personally , I view the real sweetspot for Betterment as in taxable accounts over 50K dollars, because the tax loss harvesting algorithm will generally more than pay for the expense ratio of 0.25% (ie. in this case Betterment will be even cheaper than Vanguard.)

But even for tax shelterred accounts Betterment is easier to use than vanguard since you can  literally can set it and forget it and never raise a finger and it will keep a constant risk exposure with excellent evidence based diversification  (I personally like their portfolio construction much better than vanguard's all in one funds.) .  Whether that convenience is worth 25 basis points to you is a personal question.

Vanguard is the best for low cost cap weighted index funds, so if you want to set up a simple lazy portfolio and rebalance it yourself once a year, there is no better option for tax sheltered accounts.

Either way, read an investment book or 2 in the next year or so.  You should know the basics about portfolio constrction, rebalancing, at  a minimum, before you can really decide on your own preferences.

Here's my favorite introductory book...

http://www.amazon.com/Think-Invest-Like-Warren-Buffett/dp/0071809953

Good luck and have fun!

RocknRollFun

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Re: Should I pull out my front-loaded IRA and transfer to, say, Betterment?
« Reply #8 on: December 03, 2014, 12:56:33 PM »

Personally , I view the real sweetspot for Betterment as in taxable accounts over 50K dollars, because the tax loss harvesting algorithm will generally more than pay for the expense ratio of 0.25% (ie. in this case Betterment will be even cheaper than Vanguard.)



Vanguard is the best for low cost cap weighted index funds, so if you want to set up a simple lazy portfolio and rebalance it yourself once a year, there is no better option for tax sheltered accounts.


Here's my favorite introductory book...

http://www.amazon.com/Think-Invest-Like-Warren-Buffett/dp/0071809953

Good luck and have fun!

Thanks for the advice! I was going to buy The Little Book of Common Sense Investing- is that one good too?

I am a little leery of the tax implications of tax-loss harvesting, but since that rollover would put me above 50K I'd qualify for it in Betterment.

Here's a stupid question: does tax loss harvesting go for pre-tax Traditional IRAs? I was thinking it was for post-tax contributions.
« Last Edit: December 03, 2014, 02:05:32 PM by RocknRollFun »

milesdividendmd

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Re: Should I pull out my front-loaded IRA and transfer to, say, Betterment?
« Reply #9 on: December 03, 2014, 06:13:17 PM »

Personally , I view the real sweetspot for Betterment as in taxable accounts over 50K dollars, because the tax loss harvesting algorithm will generally more than pay for the expense ratio of 0.25% (ie. in this case Betterment will be even cheaper than Vanguard.)



Vanguard is the best for low cost cap weighted index funds, so if you want to set up a simple lazy portfolio and rebalance it yourself once a year, there is no better option for tax sheltered accounts.


Here's my favorite introductory book...

http://www.amazon.com/Think-Invest-Like-Warren-Buffett/dp/0071809953

Good luck and have fun!

Thanks for the advice! I was going to buy The Little Book of Common Sense Investing- is that one good too?

I am a little leery of the tax implications of tax-loss harvesting, but since that rollover would put me above 50K I'd qualify for it in Betterment.

Here's a stupid question: does tax loss harvesting go for pre-tax Traditional IRAs? I was thinking it was for post-tax contributions.

Though I have not read that book, Jon Bogle is fantastic, and I am quite sure it is an excellent first book to read.

TLH is really only beneficial in taxable accounts (ie non-Sheltered accounts)  TLH will not help with your IRA, because you do not pay capital gains on pre-tax IRA distributions (they are taxed as ordinary income in retirement.)

My practice is to max out my retirement accounts, then contribute any extra post tax money to my betterment account.