Author Topic: Where to begin with my finances?  (Read 10342 times)

Sebastian

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Where to begin with my finances?
« on: April 26, 2013, 09:27:08 AM »
To begin, I'm 26 years old living in Madison, WI. I've been out of college now for 3 years and I currently work in sales. This year I'm probably going to make somewhere between 40-50K gross. I don't have any kind of investments in place (yet), and I have about 8K saved up for myself.

Now my question is where do I begin? I'm already going to start living super frugally. Cutting my expenses down by A LOT. It already makes me feel better about the future of my life :)

When it comes to investing, I want to get into one of the Vanguard index funds. These seem to make the most sense to me; however, should I also be getting into 401K and IRA as well?

Honestly I'm not sure how much money I would be able to contribute to three separate accounts and my goal is to be FI in the next 10 years. In order to make sure I start seeing some return on my investments. I would think that the taxable index fund makes the most sense because they I could start pulling out some money in like 10-20 years once I have a sizable amount in there right?

After I can quit my job I'd keep working side jobs aka doing things that I love. Personal training, playing in a band, website development, etc. etc. So I wouldn't be completely dependent on my investment income, but I want to make sure that I'm starting off in the right direction.

So what do you guys think I should do? If I can cut my living expenses down to 11-12K a year that gives me about 25-30K to play with per year. Should I put that all away into an index fund in a taxable account or do something else?

Thanks again!
Seth
« Last Edit: April 26, 2013, 09:58:44 AM by SethBahookey »

GreenGuava

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Re: Where to begin with my finances?
« Reply #1 on: April 26, 2013, 10:16:02 AM »
When it comes to investing, I want to get into one of the Vanguard index funds. These seem to make the most sense to me; however, should I also be getting into 401K and IRA as well?

Step one:  look up what these terms mean.  The first super super important rule of investing is to know what you're investing in.

A 401(k) is an employer-provided retirement account.  Does your employer offer one?  If so, do they offer matching?  Many employers that offer one have a deal going wherein if you elect to put some fraction of your paycheck into your 401(k) account, they'll also add more (think of it as a free raise to be used for this purpose).  For example, if I put 4% of my paycheck into my company 401(k), my employer will put the same amount in as well - on top of my pay!  If I add more after that, though, they don't keep adding more.  In 2013, you can contribute up to $17,500 to a 401(k), provided an employer offers one.  Any employer matches do not count towards this limit.

An IRA is an account you set up yourself at a place of your choosing - banks offer them, as do many brokerages and mutual fund houses.  I'm a big fan of Vanguard as a place for your IRA.  I suggest not using a bank for this service.  In 2013, you can contribute $5500 to an IRA.
When you leave an employer who had a 401(k) that you contributed to, you can typically move the money to an IRA (Roth to Roth, traditional to traditional).  This does not count as a contribution.

You should also know the distinction between a traditional and Roth variation of each.  Traditional is "pre-tax" : the money you contribute doesn't count as earned this year, grows tax free, and is taxed as income upon withdrawal.  If you're living frugally now and have a higher income, it generally makes sense to go with traditional as much as you can;  in my case, the taxes I save are at the 28% federal level and 9.3% state level;  I will almost certainly be in a lower tax bracket when I withdraw money from these accounts!

By contrast, a Roth designation is just like buying something with your paycheck:  it's after tax.  However, withdrawing from the account post-59.5 (or contributions at any time, with minor restrictions here) is tax-free (since it's already been taxed).  If you're at a low income now and expect to be at a higher one in retirement, this is a good plan.  It's also good to go Roth for an IRA if your income is such that you can't deduct (take as pre-tax) the contribution to a traditional IRA (the limit is around $60K for 2013 - if you earn more than that, you can't deduct the entire traditional contribution.  Look this up if you're near that and are thinking of making a traditional IRA contribution).

Now, I said these are accounts - just like you have a bank account.  You can put money into these accounts, and you can invest in things with that money.  Then there are rules for how and when you can take money out.  My suggestion is to have your money in low-cost mutual funds;  in particular, I think index funds are the best way to go with this.  In your IRA and taxable accounts, you have full control of where your money goes, and can pick a place that has these.  If your employer has a 401(k), they might have great options and they might have poor ones.  I've seen employers (Google comes to mind) that have 401(k) options that are far superior to anything you can get as a retail investor.  I've also seen employers who have such poor 401(k) options I'm surprised they haven't been sued for breach of fiduciary responsibility.

Also, the $8k you have saved up:  is that your emergency fund, or is that on top of said emergency fund?  Unless your income is super secure, I suggest keeping a few months' expenses in the bank that you don't invest, but rather keep as a form of insurance.

Honestly I'm not sure how much money I would be able to contribute to three separate accounts and my goal is to be FI in the next 10 years. In order to make sure I start seeing some return on my investments. I would think that the taxable index fund makes the most sense because they I could start pulling out some money in like 10-20 years once I have a sizable amount in there right?

Yes, taxable investing (whether in mutual funds, real estate, or other things) is necessary in order to achieve FI before 59.5 (with a few exceptions).  However, don't disregard the "normal" retirement accounts :  the tax-free growth is useful and you do plan to live past 60, right?  Fortunately, it's quite possible to contribute to "normal" retirement accounts and also do taxable investing.  You might not follow the "normal" suggestions for the order to do this, but that's fine.

The "normal" (for those planning to retire at or after 59.5) suggestion is to contribution enough to your 401(k) to get the company match first.  If you have more money to put towards retirement, put it towards an IRA until that's maxed out.  Got more?  Go back and add to the 401(k) until that's maxed out.  Only then do you consider taxable investing towards retirement.  This makes sense if your 401(k) isn't excellent and if you plan to retire at 59.5 or later. 

Regardless of when you intend to retire, I suggest learning about investing - first.  Since you're interested in index funds, check out the Bogleheads Wiki for some good information.  I'd also like you to find out if your employer offers a 401(k), what the fund choices within it are, and what (if anything) the match amount is.  If there's a match, sign up for at least that much ASAP!  We can deal with what to put the money into later.

Sebastian

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Re: Where to begin with my finances?
« Reply #2 on: April 26, 2013, 11:18:08 AM »
Awesome! Thanks GreenGuava! So it sounds like I should be putting all my money into those retirement type funds first before I even consider the taxable accounts? My employer does offer a 401K but they don't start matching any money till you've been here for 3 years last time I checked.

I guess I'm just a bit confused because after reading MMM and ERE it sounds like they just dumped a ton of money into a taxable account in an index fund then were able to retire living off some of that money? Granted I know there was a lot to it for both of them in their stories, but that seemed to be the overall gist of it.

How would I be able to become finanally independent if I'm stock piling all my money into accounts that won't really help me until I'm 60? So if I wanted to be done with work at 36 would I have needed to have enough to contribute to all three accounts(401k, ira, index) that whole time for it to be feasible?

I'm slowly learning how to invest myself. I've been reading a lot of books on it... more on the value investing side of things though. I never considered any of these funds until just a month ago. I eventually would like to get into real estate investing too. My gf and I are eventually wanting to get a duplex and rent out the other side to get our feet wet.

But yeah I just want to make sure that my 8K or so is going to the place that will start helping me the most right away. I'd hate to put a ton of money into some account for it to not benefit me at all and help me on my quest to getting out of the corporate world by the time I'm 36.

Oh and also the 401K would be through Charles Schwab with my company. Good or bad?

matchewed

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Re: Where to begin with my finances?
« Reply #3 on: April 26, 2013, 11:39:00 AM »
Fill your retirement funds first. 401k to match, then Roth IRA, then you can start debating on topping off the 401k or taxable.

Look up 72(t) and Roth Pipeline, both are options for accessing your old man money early at this time.

Instead of value investing books you may want to look up some more beginner books. There have been several threads about it here. Do a search. Borrow the books from the library and get crackin'. We'll still be here to answer any questions that come up.

It's great that your goal is to be FI in 10 years. And it is probably doable. You just need to lay out what that FI looks like first. What is your life going to be like? How much money do you need annually to fund that life? Revisit this plan annually to make sure you are on track and the goals haven't changed.

Once you have that number for the cash then you can start figuring out how much you need to save to get there. This savings will be divided up between many things, your various accounts and income streams.

I'd also recommend much more research.

If you do not have an e-fund then don't touch the 8k. If you have one then fund a Roth IRA imo.

And the company is less important than the options. What options do you have to put money into your 401k?

Sebastian

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Re: Where to begin with my finances?
« Reply #4 on: April 26, 2013, 12:55:46 PM »
Wow well I kind of feel stupid now as I could have been putting money in these type of funds for a while. :( So the index fund is really like the icing on the cake then after I have allocated the proper amount of money into each retirement fund?

Question though, why would I want a Roth IRA and 401K? Is it because employers match the 401K and that's the main reason?

matchewed

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Re: Where to begin with my finances?
« Reply #5 on: April 26, 2013, 01:07:08 PM »
That is one reason. Another reason is taxation flexibility come FI. Think of each account as a bucket with different rules. The complexity of having all these buckets may be daunting but it will aid you come FI. GreenGuava already outlined some of these rules related to the accounts.

Also index funds may be in the retirement funds. The retirement funds are just another investment vehicle like a brokerage account, each vehicle can invest in any number of things such as index funds.

Just start saving the money into one of the buckets and start learning. You really can't mess up too badly that way.

Sebastian

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Re: Where to begin with my finances?
« Reply #6 on: April 26, 2013, 01:22:12 PM »
Also, I was able to pull off the different "options" I have with my 401K. Pretty bored at work today :)




matchewed

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Re: Where to begin with my finances?
« Reply #7 on: April 26, 2013, 01:30:12 PM »
Hmm, I'm kinda concerned they are not listing what funds are comprised of those allocations. What that picture truly represents is various asset allocations based on a "style" of investing driven by being either conservative or aggressive with a few options between. It doesn't tell you much about what the funds are, what fees are associated with each fund, whether these funds are actively managed or index... this is why I advocate the education side. We'll quickly get into a discussion which is just a rehash of a book that will explain it better than I ever could.

Try A Random Walk Down Wall Street.

Sebastian

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Re: Where to begin with my finances?
« Reply #8 on: April 26, 2013, 01:42:20 PM »
Well either way thanks for taking the time to help me out with this stuff. I really appreciate it! I actually read A Random Walk Down Wallstreet many moons ago. I've pretty much forgotten everything in it. Accept the fact that it advocated getting into index funds. I'll take a closer look at our 401K plan here and try to figure that out.

Another Reader

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Re: Where to begin with my finances?
« Reply #9 on: April 26, 2013, 09:45:05 PM »
Those are risk profiles used for Schwab's mutual fund and ETF portfolio builders.  They use a selected list of actively managed mutual funds or ETF's to match the risk profile.   The mutual funds are generally ok, but have fairly high expense ratios for what you get.   The ETF's are similar, but most are Schwab ETF's.  They are indexed by market cap and asset type and the expenses are substantially lower.  I assume that your money would be divided proportional to the model and invested accordingly with either portfolio. This certainly isn't the worst plan I have seen, but you don't have much control beyond changing your risk profile.

In your shoes, I certainly would contribute up to the match amount.  Often with deferred retirement accounts you end up picking the best of what's available in the 401(k) and balancing those choices with things you select in your IRA.  In your shoes, I would open an IRA and start contributing for 2013 as soon as you can.  If you like index funds, Vanguard is an excellent choice.  If you want everything at Schwab, they have some good choices as well. 

secondcor521

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Re: Where to begin with my finances?
« Reply #10 on: April 27, 2013, 11:27:29 AM »
Awesome! Thanks GreenGuava! So it sounds like I should be putting all my money into those retirement type funds first before I even consider the taxable accounts? My employer does offer a 401K but they don't start matching any money till you've been here for 3 years last time I checked.

I think you may want to clarify your interpretation.  It is more likely that they match as soon as you start contributing, but they will take back their matching funds if you leave their employment any time in the first three years.  The fancy term for this is vesting, and your employer probably does it to offset the cost of their 401(k) program and to encourage employee retention.  But even if you do leave before 3 years, you still have your contributions, the earnings on those contributions, the tax deductions as a result of your contributions, and the tax free growth.

If it were me, I'd check this out, and if it is as I describe I'd start contributing yesterday.  This would be below an emergency fund but above the IRA IMHO.

hui

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Re: Where to begin with my finances?
« Reply #11 on: April 27, 2013, 03:54:17 PM »

Sebastian

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Re: Where to begin with my finances?
« Reply #12 on: April 29, 2013, 07:17:21 AM »
Quote
I think you may want to clarify your interpretation.  It is more likely that they match as soon as you start contributing, but they will take back their matching funds if you leave their employment any time in the first three years.  The fancy term for this is vesting, and your employer probably does it to offset the cost of their 401(k) program and to encourage employee retention.  But even if you do leave before 3 years, you still have your contributions, the earnings on those contributions, the tax deductions as a result of your contributions, and the tax free growth.

If it were me, I'd check this out, and if it is as I describe I'd start contributing yesterday.  This would be below an emergency fund but above the IRA IMHO.

I actually spoke with a more senior person at my work right after I posted that and he said the same thing. I guess they will match up to half of what my contribution is but only up to something to the tune of 6%... Kind of lame IMO. I'm not sure if I really want to get "vested" in a Charles Schwab account due to all the fees that people have mention.... and because I don't know if I'll stay the whole three years.. :/

For now I think I'm going to max out the Roth IRA account. Then figure out my 401K here (would it only behoove me to start a 401K with an employer so they can match?) I might just start my own?

Then finally get into the tried and true index fund.

Thank you all for the advice so far! You all have been really helpful :)

matchewed

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Re: Where to begin with my finances?
« Reply #13 on: April 29, 2013, 07:25:17 AM »
Take the match. It is free money.

plainjane

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Re: Where to begin with my finances?
« Reply #14 on: April 29, 2013, 07:35:31 AM »
I guess they will match up to half of what my contribution is but only up to something to the tune of 6%... Kind of lame IMO. I'm not sure if I really want to get "vested" in a Charles Schwab account due to all the fees that people have mention.... and because I don't know if I'll stay the whole three years.. :/

I'd really reco signing up.  I have coworkers who delayed signing up, and then it took even longer to vest, and now they feel a bit trapped, because they only have 6 months to go.  I signed up as soon as I was able, and left two months after it vested (just lucky, I had been planning to leave earlier).  The downside of putting the money in there and leaving before it is vested is pretty low, and the upside if you stick it out for three years is pretty good. 

grantmeaname

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Re: Where to begin with my finances?
« Reply #15 on: April 29, 2013, 08:30:38 AM »
Then figure out my 401K here (would it only behoove me to start a 401K with an employer so they can match?) I might just start my own?
401(k) accounts were created to supplant pensions back in the 1970s. You can't "start your own" 401k unless you start a company with a couple dozen employees, you have to be offered a 401k from your employer.

Hotstreak

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Re: Where to begin with my finances?
« Reply #16 on: April 29, 2013, 09:17:21 AM »
Hi Seth,

I'm in a similar situation to you as far as age, career status, and income go.  Based on the models at FIREcalc.com, you may be fine saving that amount per year in order to retire in 10, as long as you're okay living on $1,000 per year for the rest of your life.  No house, no kids, etc., all of which would increase your baseline quite a bit.  I know you posted this on the investing forum.. but if you're open to other advice, I recommend looking at higher paying jobs and/or starting to do your freelancing/retirement income jobs on the side right now.  You may find that in a few years you are married with kids and a house.. without planning for that possibility you will have to push back your retirement a few years.  If you DO plan for it, and it doesn't happen, then you have a much safer portfolio.

Sebastian

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Re: Where to begin with my finances?
« Reply #17 on: April 29, 2013, 12:47:42 PM »
Hi Seth,

I'm in a similar situation to you as far as age, career status, and income go.  Based on the models at FIREcalc.com, you may be fine saving that amount per year in order to retire in 10, as long as you're okay living on $1,000 per year for the rest of your life.  No house, no kids, etc., all of which would increase your baseline quite a bit.  I know you posted this on the investing forum.. but if you're open to other advice, I recommend looking at higher paying jobs and/or starting to do your freelancing/retirement income jobs on the side right now.  You may find that in a few years you are married with kids and a house.. without planning for that possibility you will have to push back your retirement a few years.  If you DO plan for it, and it doesn't happen, then you have a much safer portfolio.

Roby, please show me the way man! I've been looking online for new jobs, but it seems futile at this point. With only a bachelors in marketing I'm pretty much stuck to low salaries and/or sales jobs that I don't want to put the effort towards (if I'm going to bust my ass selling a product, why wouldn't I just start my own business?!) I just stumbled across that site iwillteachyoutoberich.com.

Any other ideas?

Hotstreak

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Re: Where to begin with my finances?
« Reply #18 on: April 29, 2013, 07:28:50 PM »
That's what my degree is in as well.  At your income level, if you're good, I assume your job is mostly transaction based.  What I mean by that is your customers know what they want/need, and it's your job to put them in the correct specific product/service, and up sell whatever you offer.  Generally, better paying sales jobs are more solution based, meaning you find customers with a problem, or need that they don't so much know they have, and provide them a product or service that solves it for them.  That means you go out and generate all your business.  It's more difficult, requires more drive, and has a higher potential for failure.  Lots of people can't do it or don't do it well.  If you're successful in what you do, take your resume and shop around town to see what is available.  There are ALWAYS sales jobs open for qualified candidates, and most of your skills (charisma, hard work, response to rejection, ability to cold call) will transfer to whatever product or service you're in the business of selling.

As to why you would do that instead of starting your own business, the answer is simple.  An established company gives you simple access to product, instant credibility, a team to work with, an office with a computer, and all the other things you need to do the job.  Also, if you don't do well, you can walk away from a job without losing the money you would have to spend to get those things on your own.

I've worked for 2 companies where sales was the primary way to get your foot in the door.  It's pretty common across the board.. start out there, do well, and take advantage of free contacts and mentors within the company to prepare yourself for the job you DO want.  If you can perform well enough to get noticed by your bosses boss, his or her recommendation will probably carry more weight within the company than a degree, and can open doors to all sorts of opportunities for you.  I have shown my ability to get things done over the last few years with my current company, and because of that I am beginning to work with people in a different department (one that makes a lot more money for the company, and pays more).  If they don't want to do that for you, then guess what, you still got your commissions, and you can use your success to land yourself in another company.

Sweet Betsy

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Re: Where to begin with my finances?
« Reply #19 on: May 01, 2013, 07:17:57 AM »
I have to concur with everyone else...sign up and start contributing to your 401K today.  Contribute enough to get the full match.  You never know where life is going to take you.  You may very well end up staying at this company for 3 years and end up vested.  You'll probably barely even notice the money coming out of your paycheck after the tax savings that you'll receive.  Once your 401K is set up make sure that you actually have it invested in something rather than sitting in the cash account at Schwab.  This is a great way for you to learn about mutual funds and index funds.  As an aside, matching 50% up to your contribution of 6% is pretty standard.  Once you are vested that will work out to you having saved 9% of your gross which isn't too shabby. 

The 8K that you have saved up should be set aside as an emergency fund.  Find a money market account with a semi decent rate and stash it in there.  Then proceed to forget that you have it unless you have an emergency.

Once you've done both of those things then you can think about saving towards FI.   You are young and you have a lot of time. 




Sebastian

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Re: Where to begin with my finances?
« Reply #20 on: May 01, 2013, 07:53:00 AM »
Ok ok ok!! You guys win. I will look into enrolling in my 401K plan this week! Honestly though if I see myself here for a whole 'nother year I might kill myself. (yes it's that bad)

So after looking into the plan these are the options it says I can invest in. Which one would make the most sense? I'm thinking the Index fund of course, but would I dump it all into that? Thanks!

You choose the investments in your plan account. Your plan offers the following choices:
Schwab Inst LC Val Trust Fd Cls R (N/A)
Schwab S&P 500 Index (SWPPX)
T. Rowe Price Blue Chip Growth Adv (PABGX)
Buffalo Small Cap (BUFSX)
Goldman Sachs Mid Cap Value A (GCMAX)
Heartland Value (HRTVX)
Lazard US Mid Cap Equity Open (LZMOX)
Loomis Sayles Small Cap Value Retail (LSCRX)
Morgan Stanley Inst Mid Cap Growth P (MACGX)
American Funds EuroPacific Gr R4 (REREX)
American Funds American Balanced R3 (RLBCX)
Schwab Managed Retirement 2010 (N/A)
Schwab Managed Retirement 2020 (N/A)
Schwab Managed Retirement 2030 (N/A)
Schwab Managed Retirement 2040 (N/A)
Schwab Managed Retirement 2050 (N/A)

GreenGuava

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Re: Where to begin with my finances?
« Reply #21 on: May 01, 2013, 08:39:35 AM »
In order to give meaningful investment advice, you need to post the expense ratios;  I've seen funds labeled "S&P 500 index fund" with far higher expense ratios than ones that were nominally active funds that had a far lower one (but looked to really be tracing the index).  If you're going to open a Roth IRA also, please indicate where (most of us suggest Vanguard) and approximately how much you plan to put into each account (say, over the course of 2013).

Also, for future decisions, come up with an asset allocation so that the risk is what you want it to be.  Do you want to have international stocks or just domestic, and in what proportion to one another?  How much of your portfolio do you want in stocks and how much in bonds?  You might not get that proportion exactly - in fact, you probably won't for your first few years.  But it's good to have a target.

jpo

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Re: Where to begin with my finances?
« Reply #22 on: May 01, 2013, 09:00:09 AM »
Just starting out I would dump it all into SWPPX. The expense ratio is 0.10%, which is competitive.

Sebastian

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Re: Where to begin with my finances?
« Reply #23 on: May 01, 2013, 09:10:48 AM »
In order to give meaningful investment advice, you need to post the expense ratios;  I've seen funds labeled "S&P 500 index fund" with far higher expense ratios than ones that were nominally active funds that had a far lower one (but looked to really be tracing the index).  If you're going to open a Roth IRA also, please indicate where (most of us suggest Vanguard) and approximately how much you plan to put into each account (say, over the course of 2013).

Also, for future decisions, come up with an asset allocation so that the risk is what you want it to be.  Do you want to have international stocks or just domestic, and in what proportion to one another?  How much of your portfolio do you want in stocks and how much in bonds?  You might not get that proportion exactly - in fact, you probably won't for your first few years.  But it's good to have a target.

Where would I find the expense ratio? It's not saying anything about that in the company brochure. Maybe on Schwabs website? The HR lady is telling me to call them up lol... a lot of good our HR department is...

GreenGuava

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Re: Where to begin with my finances?
« Reply #24 on: May 01, 2013, 09:19:17 AM »
Where would I find the expense ratio? It's not saying anything about that in the company brochure. Maybe on Schwabs website? The HR lady is telling me to call them up lol... a lot of good our HR department is...

Legally, they're required to be disclosed.  It may or may not match the one for the given ticker symbol, as many 401(k)s have management fees on top.

Does your plan have a web interface that may list this?

Sebastian

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Re: Where to begin with my finances?
« Reply #25 on: May 01, 2013, 10:00:17 AM »
Where would I find the expense ratio? It's not saying anything about that in the company brochure. Maybe on Schwabs website? The HR lady is telling me to call them up lol... a lot of good our HR department is...

Legally, they're required to be disclosed.  It may or may not match the one for the given ticker symbol, as many 401(k)s have management fees on top.

Does your plan have a web interface that may list this?

I asked the HR lady. This is what she responded with...

You may choose from the funds  offered in our plan.  There may be fees within the individual funds and that is disclosed in the prospectus.  You can request copies from Schwab.

If you are interested in self direction for your 401K, call Schwab at 1-800-724-7526 to see if our plan has a “brokerage” option associated with it.  This would have fees involved.

jpo

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Re: Where to begin with my finances?
« Reply #26 on: May 01, 2013, 10:36:46 AM »
Where would I find the expense ratio? It's not saying anything about that in the company brochure. Maybe on Schwabs website? The HR lady is telling me to call them up lol... a lot of good our HR department is...
Yes, a little bit of googling is your friend: http://investing.schwab.com/public/schwab_oldpublicsite/research_strategies/mutual_funds/summary/schwab/at_a_glance.html?ticker_sym_nm=SWPPX

In my experience HR is usually worthless for these types of things. It probably is in fact a better idea to "talk to Chuck".

Sebastian

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Re: Where to begin with my finances?
« Reply #27 on: May 01, 2013, 12:39:35 PM »
Great thanks for the help! I will give them a call and figure out all this mumbo jumbo. So last question about this and I'll leave you guys alone (for now :) ). If I do end up leaving this company. I'm assuming I would keep the 401K, but would I keep contributing to it? I have seen some recent post and read about how you can roll a 401K over to a traditional IRA. Would that be best to do, or could I some how merge this 401K with the new company's 401K plan?

jpo

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Re: Where to begin with my finances?
« Reply #28 on: May 01, 2013, 12:42:55 PM »
Great thanks for the help! I will give them a call and figure out all this mumbo jumbo. So last question about this and I'll leave you guys alone (for now :) ). If I do end up leaving this company. I'm assuming I would keep the 401K, but would I keep contributing to it? I have seen some recent post and read about how you can roll a 401K over to a traditional IRA. Would that be best to do, or could I some how merge this 401K with the new company's 401K plan?
The way I understand it, you can do one of three things: leave your 401k as it is, roll your 401k over into your new company's 401k, or roll your 401k over into an IRA. Usually if you roll into an IRA you'll have more/better investment options.

GreenGuava

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Re: Where to begin with my finances?
« Reply #29 on: May 01, 2013, 10:41:48 PM »
Looking up the symbol on Google finance (or similar) is only good if the 401(k) provider didn't add any wrap fees.  However, the relative expense ratios tend to remain, so it's good enough for now.

Great thanks for the help! I will give them a call and figure out all this mumbo jumbo. So last question about this and I'll leave you guys alone (for now :) ). If I do end up leaving this company. I'm assuming I would keep the 401K, but would I keep contributing to it? I have seen some recent post and read about how you can roll a 401K over to a traditional IRA. Would that be best to do, or could I some how merge this 401K with the new company's 401K plan?
The way I understand it, you can do one of three things: leave your 401k as it is, roll your 401k over into your new company's 401k, or roll your 401k over into an IRA. Usually if you roll into an IRA you'll have more/better investment options.

Yes, plus there's a fourth option:  cash out the 401(k), pay the taxes and a 10% penalty (plus your state might add some;  CA adds 2% here).  Don't do that.

My suggestions on which option to choose:

Keep your 401(k) where it is if the options turn out to be fantastic.  For example, if you're at Google, one of the options in your 401(k) is Vanguard's S&P 500 index... with a 0.02% expense ratio (VIIIX if you want to look it up).  That makes Admiral shares look pricey by comparison!  If I were at Google (I'm not), and I left, I'd try to keep that there for a while if I were using that fund.

Roll your 401(k) into your new employer's plan, if it accepts such, if their plan has such great offerings.  For example, if you're going to start a new job at Google and want to use the above S&P 500 index fund.

If neither of these is the case, open a "rollover"/traditional IRA at Vanguard (or wherever you choose to go;  I like Vanguard) if you don't already have one.  You'll do what's called a "rollover" where the brokerage gets the money straight from the 401(k) provider, and moves the assets "in kind" (keeps what you had).  You can then re-allocate these to whichever funds you prefer.  If you had a Roth 401(k), those would go into your Roth IRA instead.

BTW, if you're going to go with Vanguard, you'll want to have at least $1000 in your 401(k), as that's the smallest amount you can get a fund there with (unless you feel like dealing with ETFs).

Sebastian

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Re: Where to begin with my finances?
« Reply #30 on: May 02, 2013, 07:35:43 AM »
OMG WTF!? So I called Charles to ask about some of the questions I had about our company's 401K... fees, vesting, etc.

This lady just kept asking me why I would want to just go with an "index fund" because I'd be missing out on other areas of the market. Like small cap, mid cap etc. Basically she was very condescending and essentially was telling me I didn't know what I was talking about the whole time.

Is this real life? What is the point in calling these people if this is how they act? At this point as I already mentioned I don't plan on staying here this long. I don't really make that much money, and the matching contributions will only be made at the end of the fiscal year. The matching contribution is also subject to change depending on how well my company does.

So with all that being said I don't think I am going to start off with a 401K here. At this point I think it makes the most sense for me to set up a Roth IRA and max that out. By then I should be at a new company and I can start up with them.

Thanks again everyone for your advice!

GreenGuava

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Re: Where to begin with my finances?
« Reply #31 on: May 02, 2013, 08:58:02 AM »
OMG WTF!? So I called Charles to ask about some of the questions I had about our company's 401K... fees, vesting, etc.

This lady just kept asking me why I would want to just go with an "index fund" because I'd be missing out on other areas of the market. Like small cap, mid cap etc. Basically she was very condescending and essentially was telling me I didn't know what I was talking about the whole time.

Funny, my retirement money is entirely in index funds and I have small cap and mid cap covered, no problem.  This does, however, perfectly fit with what I think of Charles Schwab.  They have to pay for those TV ads somehow, and it probably isn't through serving their investors' needs with low-cost funds.

Is this real life? What is the point in calling these people if this is how they act? At this point as I already mentioned I don't plan on staying here this long. I don't really make that much money, and the matching contributions will only be made at the end of the fiscal year. The matching contribution is also subject to change depending on how well my company does.

Assuming you plan to leave before the fiscal year is done, I'd wait on the 401(k) until you get to the next company.  It doesn't sound like you need the deduction right now, and you can work on your other retirement investments in the meantime.

So with all that being said I don't think I am going to start off with a 401K here. At this point I think it makes the most sense for me to set up a Roth IRA and max that out. By then I should be at a new company and I can start up with them.

Thanks again everyone for your advice!

Best of luck.  Let us know how it goes - and if you have questions about allocations with your new company's 401(k).

icefr

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Re: Where to begin with my finances?
« Reply #32 on: May 02, 2013, 12:40:35 PM »
Argh, that sounds terrible Seth!! I would almost try calling Chuck back and see if a different rep is better... My 401(k) isn't there, but I have some other stuff there and the reps haven't been *that* annoying.