Author Topic: Did my bad investment hurt me? How to move forward from here?  (Read 3365 times)

slomo85

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Good afternoon everyone,

My GF and I have been learning a whole lot from here and the MMM blogs, often reading articles out loud so we can share in the learning.

Since I have been learning a lot about investments, I am now calling into question my current investments. I opened up this account specifically to ask about my current situation.

My current investments are as follows:
- TSP (Work Traditional IRA, no employer matching): ~$51k
- Roth IRA: ~$31k

The TSP account: I did not realize that the great expense ratio (~0.04%) and contribution limits were so high (~$18K per year). I have been very foolishly contributing only 10% of my pay for years, then for the last 3 years or so I have been putting in 20%. I really didn't know what I was doing, but figured savings was good. Knowing what I know now, I am currently on track contributing 57% of my pay to max my contributions out for the year.

The Roth IRA: Simply opened up a few years ago as another place to put extra money (I'm pretty frugal already). Once again, I opened it up just thinking it was better than adding more into my money market account. Now that I have a clue, I know the expense ratio is high (~0.88%) and I can't retire early off this, can't draw $ out until I'm old.

Now, after much MMM reading I believe that what I should have done instead of opening up the Roth IRA, I should have opened up a Vanguard account. This, however doesn't change what I have already done. I have thought about closing the Roth IRA, taking the penalties and using it to open my vanguard account, or just leaving it in place and starting over and opening a new Vanguard account. I'm a little unsure how to take the least amount of "hit" from this.

So, I don't currently see why I would need TWO retirement accounts, especially since my employer plan seems to be much better. Is taking the withdrawal hit by closing the Roth IRA as bad in this situation as I think it will feel to me when I actually do it? Is there a better way?

Once again, I have and will continue to learn heaps from this forum and blog. And a big thank you to everyone who has contributed to this forum/blog.

Radagast

  • Pencil Stache
  • ****
  • Posts: 574
  • Location: West of the Mountains, East of the Sea
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #1 on: July 03, 2016, 08:45:35 PM »
You can/should simply roll your existing Roth IRA over to a Vanguard Roth IRA. You can literally move the existing fund over to Vanguard, intact, with no tax or penalty. In fact I believe if you contact Vanguard they may actually do it for you. Then, when the fund is at Vanguard you simply sell it and use the money to buy the Vanguard fund(s) of your choice. There is no reason to close the Roth at a 10% penalty when you can withdraw the principal penalty-free at any time.

What fund and company is the existing Roth with?

Classical_Liberal

  • Pencil Stache
  • ****
  • Posts: 714
  • Age: 41
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #2 on: July 03, 2016, 09:31:41 PM »
After 5 years you CAN withdraw all of your original contributions from the roth penalty free, just not the growth. 

Previous poster is correct you can just roll the Roth to Vanguard without tax implications, you can do it online and print out what you need.  However, you do not need to do it "In Kind", meaning keeping your currently owned mutual fund/ETF.  You can do it "in kind" if you wish to keep the previous fund, but the whole point of your transfer seems to be to get rid of it.  It's generally easier and saves fees if you sell your current investments inside the current Roth and keep the money in a cash equivalent account (ie money market) and then transfer it as cash to vanguard.  Once the Roth is at vanguard buy vanguard funds or ETF's for free.  There will be no taxable event because it's done inside the roth bucket.

Just a heads up, vanguard is awesome at everything BUT transfers.  The process is very slow and will probably require monitoring (a few phone calls to customer service) on your part to make sure it is progressing properly.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 3785
  • Age: 32
  • Location: Seattle, WA
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #3 on: July 03, 2016, 09:42:43 PM »
Keep saving in your retirement accounts, TSP and IRA! You absolutely can use these funds for early retirement. Read this blog post and this forum thread to find out how! Ask if you have any questions.

Do move your IRA to Vanguard or another low-fee provider. You don't need to move it to a taxable account; Vanguard offers IRAs.
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 3785
  • Age: 32
  • Location: Seattle, WA
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #4 on: July 03, 2016, 09:51:20 PM »
After 5 years you CAN withdraw all of your original contributions from the roth penalty free, just not the growth. 

Roth IRA contributions can be withdrawn at any time with no tax due.

There are two separate "five year rules" that come into play with Roth IRAs. Neither of them apply to early withdrawals of contributions.

The first five year rule says that you can't make a "qualified distribution" until you have had your account open for at least five years. However you also can't make a qualified distribution until you're either old, disabled, dead, or making a first home purchase. If none of those apply to you, your early withdrawal of contributions wasn't going to be a qualified distribution anyway, so the amount of time your account has been open is irrelevant.

The second five year rule says that amounts converted from traditional to Roth must sit five years before they can be withdrawn without owing the 10% early withdrawal tax. That doesn't apply to your direct contributions since they weren't converted from traditional.

Note that only the contributions can be withdrawn at any time for free. If you dip into the growth, you'll have to pay your regular income tax rate plus a 10% early withdrawal tax on that amount.
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

Classical_Liberal

  • Pencil Stache
  • ****
  • Posts: 714
  • Age: 41
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #5 on: July 04, 2016, 12:34:20 AM »

Roth IRA contributions can be withdrawn at any time with no tax due.


This I did not know, I thought the 5 years qualified always applied.  Thank you!

MichaelB

  • Stubble
  • **
  • Posts: 127
  • Age: 30
  • Location: Charlotte, NC
  • FIRE goal: April 2032
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #6 on: July 04, 2016, 06:24:37 AM »
Lord, don't take an early distribution just because of an expense ratio. That's the worst option. 0.88% might be high, but it beats the hell out of the 10% the IRS charges. Your best option is an IRA to IRA transfer to something with a lower expense ratio, but you'd be better off leaving it where it is than taking an early distribution.

And really, I wouldn't say that having invested in a fund with a high expense ratio hurt you. You built up a $31k balance in a tax-sheltered account--that doesn't sound bad to me! Expense ratios are basically just what percentage of the assets that the fund uses for costs of investing and paying themselves. So say the fund managers generate 9% of return, before costs. A fund with a .88 expense ratio will end with an overall 8.12% return, whereas a fund with a .10 expense ratio would generate 8.9%. So yeah, lower expense ratios are better, and they can make a surprising difference over the long term. But you were still doing the right thing saving and investing, and it was just the difference between getting 8.12% and 8.9%--yeah, 8.9% is nice, but you still were getting 8.12%! So like I said--I don't think it hurt you by any stretch. Now you just get to save and invest more efficiently. :-)

Do an IRA-to-IRA transfer. Open up a Roth with Vanguard, then get the paperwork (don't know if you have to call, or if you can do the paperwork online) and mail it in with a statement less than 90 days old.

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 6382
  • Age: 60
  • Location: The Villages, Florida
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #7 on: July 04, 2016, 07:01:46 AM »
You can do what's called a trustee-to-trustee transfer. Much of the time, it can be done electronically. Call up Vanguard, tell the person on the phone what you want to do, and let them walk you through it.

MayDay

  • Magnum Stache
  • ******
  • Posts: 3236
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #8 on: July 05, 2016, 07:36:58 AM »
You can do what's called a trustee-to-trustee transfer. Much of the time, it can be done electronically. Call up Vanguard, tell the person on the phone what you want to do, and let them walk you through it.

I've done this with no problems.  It was done all over the phone while I was on the line, IIRC. 

Journal:  http://forum.mrmoneymustache.com/journals/mayday's-journal/350/  featuring children, chickens (new!) and other ch words.

slomo85

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #9 on: October 15, 2016, 11:26:57 AM »
Three things.

1st: Thank you so much everyone! I was able to transfer to vanguard without any of the penalties I was worried about. Yes, it did take a long time, and I did have to call a few times but now it's done.

2nd: I'm sorry it took me so long to reply, it wan't all vanguards or usda's fault. Life gets busy and maybe I don't devote enough time to finances :(

3rd: as I'm reviewing the account today I see some discrepancies. First, the $ I transferred last month to the new IRA account never made it, but it is now sitting in a money market savings account. I'll have to tackle that one on my own.

***Begin Help***
So, The trustee to trustee transfer did appear to wrk but, what I am seeing today is that the IRA is currently held through Vanguard but it is still invested in the same USAA fund. This is not what is supposed to happen. I'll have to call them up and find out what happened. But, this does present a unique opportunity. If I have to transfer the funds investment, I may as well investigate what the best fund spread will be, for proper diversification. I have read a few MMM articles about this and do so it discussed a few places here on the forum, but most are dated several years ago. An early MMM article calls out some Vanguard funds that no longer exist, and there are new ones to choose from as well.

***Question***
What are the most up to date, good investment strategies/funds w/vanguard recently? As of at least 2016?

Classical_Liberal

  • Pencil Stache
  • ****
  • Posts: 714
  • Age: 41
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #10 on: October 15, 2016, 11:58:08 AM »
Good to hear you got it done! 

Yes, it sounds like they did an "In Kind" transfer, despite the fact that is not what you wanted.  I had the same problem in my recent Xfer, I liquidated my previous holdings prior to the request and had to repeatedly tell Vanguard customer service the money was now in a money market.  Oh well, not the end of the world, Vanguard will likely charge you a small fee (maybe $7) to sell the fund.

As far as investing goes... It all really depends on your circumstances, what current investments you have.  Tax sheltered accounts like Roth's or IRA's provide advantage for certain investments (like most types of bonds, REITs, etc). I see you have others investments in your Traditional IRA as well.  If you are just getting started I would say, take time to learn which investments best fit in what spaces and determine your risk tolerance (not just what you think it is, what it really is).  In the meantime, if you want to move out of your other fund right away, I would go 70% VTI and 30% VXUS.  Total us stock market and total international.  Since they are inside the ROTH you can always choose switch your strategy later without tax consequences when you learn more.

The best beginning investment advice is probably this:
http://jlcollinsnh.com/stock-series/
He has a book now too!

After digesting this, if your interest is peaked, you can move on to slightly differing or more advanced viewpoints.  Otherwise, there is nothing wrong with just following his advice. 

Radagast

  • Pencil Stache
  • ****
  • Posts: 574
  • Location: West of the Mountains, East of the Sea
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #11 on: October 15, 2016, 12:04:22 PM »
You'll need to give more details on what your goals are and how much time you want to spend thinking about it to get better answers to your question. LifeStrategy Growth is a good choice (80% stocks 20% bonds). Honestly the "best" funds don't really change very fast, if ever.

Money goes by default to a money market settlement account everywhere, not just Vanguard.

human

  • Pencil Stache
  • ****
  • Posts: 736
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #12 on: October 15, 2016, 12:10:22 PM »
I don't have much advice, but thought I would chime in to say that .88% is much better than a lot of funds out there (assuming there is no other front loading fees). I don't think you did too bad and you shouldn't beat yourself up.  A lot of people here, like myself started visiting this forum with nothing saved. You're doing good! Keep up the current savings rate and find a lower fee fund at vanguard and never look back!

MDM

  • Walrus Stache
  • *******
  • Posts: 6709
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #13 on: October 15, 2016, 12:14:40 PM »
***Question***
What are the most up to date, good investment strategies/funds w/vanguard recently? As of at least 2016?
Appears the bogleheads site is currently down, but if you can go to https://www.bogleheads.org/wiki and search for "Three fund portfolio" you should get what you seek.

ClaycordJCA

  • Stubble
  • **
  • Posts: 111
  • Location: SF Bay Area
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #14 on: October 16, 2016, 05:04:20 PM »
Where is the Roth currently invested and in what fund?  You may not even have to transfer if you hold the Roth in a brokerage account (access to low cost ETFs, including Vanguard's) or in a mutual fund family that offers low cost index funds (Fidelity, for example). 

slomo85

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #15 on: July 20, 2017, 12:39:53 PM »
Where is the Roth currently invested and in what fund?  You may not even have to transfer if you hold the Roth in a brokerage account (access to low cost ETFs, including Vanguard's) or in a mutual fund family that offers low cost index funds (Fidelity, for example).

The fund is currently invested in the USAA Target Retirement 2050 Retail Class (URFFX), but held @ vanguard. I'm Going to read through the boggle head link provided and get this thing transferred most likely to vanguards total stock market and total us and total international. Thanks again everyone.

I'm moving ridiculously slow on all this but I am still saving lots every month. Busy work weeks, had a child and got married... It's all been fantastic but I have been letting these financial plans slide again.

Were currently looking to get the condo paid off this year, only about 38k more to go on that, then more $ will be avail for saving again.

letired

  • Pencil Stache
  • ****
  • Posts: 533
  • Location: Texas
    • Needs More Glitter
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #16 on: July 20, 2017, 01:05:50 PM »
I'm moving ridiculously slow on all this but I am still saving lots every month.

You are doing the right things!

a) speed is not important here. taking the time to do your research and made decisions you are comfortable is the most important thing.

b) your investment time horizon is the rest of your life. A few months here or there isn't going to make or break anything.

c) you are savings lots, and that is the most important thing you could be doing right now. getting it all invested well is important eventually, but as always, the actual saving of the $$ is the most important bit.

WildJager

  • Bristles
  • ***
  • Posts: 401
  • Age: 31
    • Can't complain.
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #17 on: July 21, 2017, 08:35:50 AM »
What are you invested in with your TSP?  The only reason I ask is because I often come across military peeps who don't know that there are choices within the TSP to invest with.  The default fund is the G fund (last I checked), which is fairly conservative just being treasury securities.  The C fund mimics the S&P 500.  There are also lifecycle funds now if that's more of your thing.

I'm assuming you're military since you're not getting contribution matching, and if so look into the new retirement plan you'll be eligible for next year.  They'll start matching up to 5% if you opt in.  If you plan to stay in for the pension, you'll have to run the numbers to see if that's worth it for the reduced pension you'd end up getting.

Financial.Velociraptor

  • Pencil Stache
  • ****
  • Posts: 899
  • Age: 45
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #18 on: July 21, 2017, 09:04:13 AM »
I think you are going to be just fine.  The main driver of early retirement age is not expense ratio but rather savings rate.  Now that you are maxing your TSP, you should reach the goal relatively quickly. 

You have gotten good nuts and bolts advice above.  Good luck.
Achieve Financial Escape Velocity - Financial Velociraptor

YYK

  • 5 O'Clock Shadow
  • *
  • Posts: 12
  • Location: Scattered disc
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #19 on: July 22, 2017, 05:15:59 PM »
Were currently looking to get the condo paid off this year, only about 38k more to go on that, then more $ will be avail for saving again.

Depending on the interest rate on your mortgage, I'd recommend not paying it off. Putting the money you're using to make accelerated payments into your investment portfolio is safer and is going to net you lots of money in the long run.

anorman79

  • Stubble
  • **
  • Posts: 174
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #20 on: July 23, 2017, 01:15:02 PM »
I had read posts about the 3 fund portfolio and things like that but I ended up just putting my Vanguard Roth into their target date fund. I liked the simplicity of it and the expense ratio is like .05% I think. My wife has access to Vanguard funds through her 401k plan and we're also in the vanguard target date there.

slomo85

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #21 on: August 06, 2017, 12:46:43 PM »
What are you invested in with your TSP?  The only reason I ask is because I often come across military peeps who don't know that there are choices within the TSP to invest with.  The default fund is the G fund (last I checked), which is fairly conservative just being treasury securities.  The C fund mimics the S&P 500.  There are also lifecycle funds now if that's more of your thing.

I'm assuming you're military since you're not getting contribution matching, and if so look into the new retirement plan you'll be eligible for next year.  They'll start matching up to 5% if you opt in.  If you plan to stay in for the pension, you'll have to run the numbers to see if that's worth it for the reduced pension you'd end up getting.

My TSP is in the Lifecycle fund. Yes, I'm military but I can't opt-in to the contribution matching since I have over 12 years of service already. I like that they made that for us to, because I ran the #'s and it would be a horrible deal now that I already have this much time invested into the current plan.

slomo85

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #22 on: August 06, 2017, 02:17:17 PM »
Ugh, just got done trying to exchange funds and it said I can't. I'm trying to exchange USAA 2050 retirement fund that is held @ vanguard to the VTSAX but it said I can't because the funds are not in the same asset class. If I cannot exchange for the vanguard funds with the lower expense ratio's, this was all for nothing. I suppose I will have to try to call on Monday, tomorrow, to see what I can do...

kenaces

  • Stubble
  • **
  • Posts: 186
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #23 on: August 06, 2017, 03:36:34 PM »
Likely just sell USAA fund and buy vanguard funds you want.  Not exchange

MDM

  • Walrus Stache
  • *******
  • Posts: 6709
Re: Did my bad investment hurt me? How to move forward from here?
« Reply #24 on: August 06, 2017, 03:54:48 PM »
Ugh, just got done trying to exchange funds and it said I can't. I'm trying to exchange USAA 2050 retirement fund that is held @ vanguard to the VTSAX but it said I can't because the funds are not in the same asset class. If I cannot exchange for the vanguard funds with the lower expense ratio's, this was all for nothing. I suppose I will have to try to call on Monday, tomorrow, to see what I can do...
Did you try VTSMX instead of VTSAX?