Author Topic: Advice for an investing neophyte  (Read 3162 times)

Janelle

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Advice for an investing neophyte
« on: July 30, 2014, 10:55:28 AM »
Hi y'all! I'm hoping to get some advice on my retirement plan, or maybe just a little encouragement to be braver in my investing endevors. I've been reading MMM articles for the last year, but mostly with the lens of working on reducing my expenses. Now that I've done that, I'd like to start investing. Here's the basic info...

Annual salary ~70,000 (I teach and have some nice side gigs. I think my base salary is more around 63,000)
I started paying into a 403b at my last job, and ended up with two different annuities capped around 4%. This was really the only option from that employer, and I am just now starting to understand that it is only meant to keep up with inflation. I'm 32 and should clearly be in more aggressive stuff. The total in these accounts is ~20,000.
When I quit that job and moved, I stopped contributing in order to pay for graduate school. I'll have completed my Ed D three years from now, but since reading MMM, I save enough to pay out of pocket with some left over to start contributing again. I'll graduate with no loans. (Thanks MMM community!!)
I also pay into a pension plan, but I haven't been paying much attention to that since I plan on taking a new career path when I complete my doctorate.
Anyway, my current employer offers many, many 403b options, including Vanguard. I think it's probably worth taking the penalty fees on the annuities to move them to an index fund with Vanguard. I was working up the nerve to open the account, and then got sucked into working with a commissioned finance guy from our district office. He is trying to convince me that Morningstar is a better option, even though they charge a management fee, and of course, he will be getting a commission to help me roll the funds over.

So here are my questions:
1) If most people on this forum are using Vanguard, what would be the reason to pay management fees to Morningstar instead?
2) Is there any reason I need a liscenced finance guy to move my annuities to either Vanguard or Morningstar? I guess my fear is that I'll do it wrong and end up paying more fees/penalties than needed. The finance guy made it clear that I will be paying a fee, but that it's worth it.
3) With a 403b, will I be able to choose a mix of vtsax and vbtlx? Or when I get the account opened, does it become more complicated than that? I feel like this particular lack of knowledge is what keeps me from doing this myself and why I've put it off.
4) Any links to MMM posts I should be checking out? I tried checking out Bogleheads but still need more time to look it over.

Any advice would be greatly appreciated. Thanks for reading this far!

matchewed

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Re: Advice for an investing neophyte
« Reply #1 on: July 30, 2014, 11:21:36 AM »
So here are my questions:
1) If most people on this forum are using Vanguard, what would be the reason to pay management fees to Morningstar instead?

Supposedly they'd be capable of providing greater than market returns with the funds that they would be offering. In practice they probably can't.

2) Is there any reason I need a liscenced finance guy to move my annuities to either Vanguard or Morningstar? I guess my fear is that I'll do it wrong and end up paying more fees/penalties than needed. The finance guy made it clear that I will be paying a fee, but that it's worth it.

Probably no reason. Take your time to understand your options. Figure out where the fees may be. Sitting down and attempting to grok this for a few weeks isn't going to destroy your financial future.

3) With a 403b, will I be able to choose a mix of vtsax and vbtlx? Or when I get the account opened, does it become more complicated than that? I feel like this particular lack of knowledge is what keeps me from doing this myself and why I've put it off.

Depends on your 403b plan. You need to sit down and understand it.

4) Any links to MMM posts I should be checking out? I tried checking out Bogleheads but still need more time to look it over.

To my knowledge he's never covered 403b's so not really. IMO you need to get your plan's documentation and sit down and read it (and I don't mean read it like skim through, I mean highlight areas you don't understand, formulate questions, figure out the answers...etc.). Then read it again. Then read it again and start asking more questions.

Garnacerous

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Re: Advice for an investing neophyte
« Reply #2 on: July 30, 2014, 01:28:24 PM »
3) With a 403b, will I be able to choose a mix of vtsax and vbtlx? Or when I get the account opened, does it become more complicated than that? I feel like this particular lack of knowledge is what keeps me from doing this myself and why I've put it off.

From my experiences, a 403b is the educator's equivalent of a 401k. The same tax/withdrawal rules apply, but it really depends on your provider as to what investment options you have. My wife participates in a 403b and while the district only offered mostly annuity options (bleh), but they also allowed us to choose a Fidelity fund. You will have to weigh the pros and cons of each option (as well as any potential employee match).

The other option that you mentioned is transferring your funds to a Vanguard Traditional IRA. This would work the same way, except it wouldn't just automatically come out of your paycheck because its not through your job. This may only require you to fill out a couple of forms, but I'd talk to your HR dept first to see if they can point you towards more specific information.

Janelle

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Re: Advice for an investing neophyte
« Reply #3 on: July 30, 2014, 08:44:53 PM »
Thanks for the info. The 403b being offered here is through Vanguard, so would this be better than a traditional IRA? Other than my needing to manually move the contribution to the fund each month, is there a difference? There is no company match, and unfortunately when I went to talk to HR, their only information was to point me toward the finance guy who charges a commission. 

milesdividendmd

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Re: Advice for an investing neophyte
« Reply #4 on: July 30, 2014, 11:06:11 PM »
There's usually a higher cap on contributions in a 403B(17.5K), than an IRA (5.5K).   Also there often is an employer match for the 403B. (Free money)

If the 403 B is through vanguard , you'll have excellent options.

The Morningstar option sounds like a bad bad idea.

pom

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Re: Advice for an investing neophyte
« Reply #5 on: July 31, 2014, 07:48:28 AM »
I would roll my actual 403(b) into a rollover IRA at Vanguard and not into the new 403(b).

The issue if you transfer it to the new 403(b) is that there is a "admitedly slight" chance that one day they decide that they don't want to offer Vanguard anymore and you have to switch everything out.

If you call Vanguard, they will walk you through how to do it ... for free.

Janelle

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Re: Advice for an investing neophyte
« Reply #6 on: July 31, 2014, 01:24:57 PM »
@Pom, I think this is the approach I will take, especially considering I might not be in the public teaching sector after I complete my graduate studies, and it saves me from having to roll over then anyway.

To update, I emailed the finance guy handling my rollover to let him know I was still interested in Vanguard and he emailed back with a rant about how I can't simply trust blog advice and that I am making a big mistake. It was really awkward and uncomfortable.

So now, what I'd hope for everyone reading this blog, teachers especially, is to listen to matchewed and take the time to understand the options available, and consider that just because the district/employer referrs you to a person doesn't mean it makes the process any more transparent. In fact, it made it more opaque for me.

Again all, thanks for the advice :)


milesdividendmd

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Re: Advice for an investing neophyte
« Reply #7 on: July 31, 2014, 01:47:34 PM »
This finance guy really seems to really have strong concerns for his own commissions...errrr  your financial well being.

usmarine1975

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Re: Advice for an investing neophyte
« Reply #8 on: July 31, 2014, 02:14:49 PM »
The problem is the guy you are talking to that your HR department has referred you too has a connection that has gotten him access to all the employees.  Generally paying fee's to an adviser makes sense as someone else pointed if it leads to better returns etc...  And not everyone is comfortable handling their finances themselves.  However the adviser should make you feel comfortable and spend more time educating you about your options instead of trying to convince you he is the way to go.  If he does his job properly you will understand all your options and make a decision that works best for you. 

Unfortunately he is commission and spending the time to do so is not in his best interest.  Low Fee's shouldn't be your only concern if the fee's are low and the return is low what have you gained.  Again it plays a part but so does your risk tolerance, the return of funds used etc...

You are better to take more time to understand what you are doing before you do it.  Do not make a rash decision especially in regards to pre tax money switching in and out of different accounts. 

I know many here may face punch me for saying it but if you feel you need assistance you need to find someone that will give you straight forward advice.  A fee based advisor that is a fiduciary etc...  Not always easy to find but good ones do exist.

Disclaimer

I worked for 3.5 years in the commission side didn't like the model and now work as a Client Services Manager for a Fee based firm.  It's a totally different experience.  Good luck.