Consolidating multiple investment accounts - where to put my money?

[prdycool]

Hi everyone! I'm new to mustachianism and have a hard time understanding "investing" and have a slight (irrational?) fear of losing my money - like a market crash right when I want to retire. I'm fine working on saving 50% or more of my income, but I'm not sure where to put it and I've ended up with a number of investment accounts, some of which are doing nothing. A basic snapshot: I am 30 and make about $3000 a month (conservative estimate, often with shift differentials and overtime). I have the following investment accounts through work:

- A 401(a) where my employer puts in 4% of my salary, I don't believe I am allowed to contribute to this account myself. It's all in VANG INST TR 2050.
- A Roth 403(b) where I currently contribute $400 a month (13% of income). Since it's a 403(b) I have a limit of $18000 instead of the normal Roth limit of $5500. It's all in VANG INST TR 2050.
- Another 401(a) cash match account where I get an extra 2% if I'm investing at least 4% in the 403(b) (which I am). I don't believe I can contribute to this account either. VANG INST TR 2050.

Before this employer, I had some other investment accounts including a 401(k) rollover(?) to traditional IRA when I left my last job. I have:
- A Roth IRA invested in AMERICAN GROWTH FUND OF AMERICA CLASS A, not currently contributing.
- A Traditional IRA invested in FDIC-INSURED DEPOSIT SWEEP, this means it's not invested right? Not currently contributing.
- An Individual or Brokerage account, invested in MFS MODERATE ALLOCATION CL C, not currently contributing.

These all add up to about $21k. Questions: Should I consolidate these accounts and how? In what order should I be contributing? I'm already meeting my "cash match" and most advice says to invest in a Roth after that up to the limit. I have the somewhat unique situation of having a Roth 403(b) which gives me a very high limit of $18000 which I don't think I will be able to hit. Should I ditch the other Roth and Traditional? Keep them for investing in something other than VANG INST TR 2050 (like what?)? Is having a brokerage account that useful or should I put it in a normal savings account?

Other info: I have about $5000 in a savings account (0.01% APY I think?) and another $2000 in checking. I also recently bought a house with my partner and I am putting about 42% of my income into a joint account that covers mortgage, utilities, house expenses, and other communal fees. No other loans/debts.

Thanks for any advice!

[Huskie87]

Hey there!  Lots of questions there so I'm only going to address a few.

You can't consolidate accounts with different structures.  You may be aware of this, but you can't consolidate say your Roth IRA with your brokerage account because of the tax-ability of those accounts.  What I think you could do is hold your old accounts, and your checking/savings all in one spot.  I do this with Fidelity, because they have a great cash back card and many of their commission free etfs are now comparable to vanguard.  So I've got my cash there, my credit card there, and my investments there.  All under one login, which is nice.

As for ditching old accounts, don't do that.  Again if you move the accounts...to Fidelity or vanguard or wherever...you can sell out of your funds and invest in something else.  You'll still have the seperate formats (roth ira, traditional ira, individual/brokerage) but they'll now be invested in other funds.  You're paying 0.66% per year in American Growth Funds of America A, you're paying 1.74% in that MFS fund.  Both would be better invested in a low cost diversified etf.  You can get this down below 0.20% for sure.

Keep investing to get those matches, and then fund your IRA.  Most people on this site are looking to retire early, so funding pre-tax accounts is generally ideal.  You didn't mention your healthcare plan though...funding a HSA would be even better (it's basically an IRA that you can tap into for medical expenses penalty free)

[prdycool]

Thank you for your reply, clearly I have no idea how any of this works. I thought maybe I could add the Roth IRA to the Roth 403(b) or somehow add the traditional IRA somewhere. I do have all of these account with Fidelity, but my checking and savings at Wells Fargo, so maybe I'll look into moving those to Fidelity as well.

The part about percentages confused me - where do those numbers come from? Those funds were what I had set up by an advisor a long time ago when I created the accounts. I'm not 100% sure what a low cost diversified etf is (even after googling). Are there particularly good ones I should choose? Is it easy to sell and switch on Fidelity's site? It all sounds terrifying to me! :)

I didn't know the bit about pre-tax accounts being ideal for retiring early, I've only heard to do Roths if you are younger. Do you have more info on this topic? I do have the option to have the 403(b) be pre-tax instead of roth. Is that something I should consider switching? I also have an option for a roth or traditional 457, but I don't fully understand it or it's benefits.

Healthcare is tricky - I have a chronic condition requiring lots of medication and specialist visits (which I think will inevitably prevent me from being able to retire early). I'm in the middle tier plan through my employer with an FSA. The HSA is only available if I get a more restricted plan, which I don't think will cover medications and doctors in the way that I need, but I will look into it again next open enrollment period.

Thanks again for your help! This is all very confusing territory for me. :)

[letired]

Deep breath! you are asking all the right questions! I'm going to dump some reading material on you. Take your time, read, ask questions. When you feel confident, then you can make your moves!

The part about percentages confused me - where do those numbers come from? Those funds were what I had set up by an advisor a long time ago when I created the accounts. I'm not 100% sure what a low cost diversified etf is (even after googling). Are there particularly good ones I should choose? Is it easy to sell and switch on Fidelity's site? It all sounds terrifying to me! :)

The percentages refer to the 'expense ratio' of the funds you are invested in. The expense ratio is how much money the mutual fund company charges to run the fund: salaries, printers, office space, etc etc. Higher expense ratio is bad, lower expense ratio is good. This is why the folks here like Index Funds. Index funds follow an index, which is a predetermined collection of (usually) stocks. A popular index is the S&P 500 index. There are also indexes for the entire US stock market, the entire US bond market, and various combinations of international stocks. Since there is no team of people researching and picking stocks, the cost to run the fund is much much lower and you get a much better chance at decent performance (stock picking is hard to get right and expensive even if they make bad picks).

Here is a more detailed explanation of mutual funds and fees: https://www.bogleheads.org/wiki/Mutual_funds_and_fees 

I didn't know the bit about pre-tax accounts being ideal for retiring early, I've only heard to do Roths if you are younger. Do you have more info on this topic? I do have the option to have the 403(b) be pre-tax instead of roth. Is that something I should consider switching? I also have an option for a roth or traditional 457, but I don't fully understand it or it's benefits.

The advice for Roth vs traditional is difficult because there is not a one-size-fits-all answer. In general, Roth accounts are better when your current tax rate is lower. This is because the money is taxed when it goes into the account, and all growth is tax free. If your current tax rate is higher, it's generally considered better to use a Traditional account that is not taxed when it goes into the account, but all growth is taxed when you take any of the money out of the account.

There is also a dude who did a very extensive writeup about traditional vs roth accounts. You can check it out here.

And here is a nice general guide to 'investment order' for US investors written by a nice forum contributor.

re: 457 accounts. These accounts can be great because you can usually take money out of them without penalty before retirement age if you no longer work for that employer. 401k/403b accounts impose a penalty for taking money out before retirement age, which can be tricky to get around. I have a few thousand dollars in one that I am very excited about.

And finally, here are two resources for learning about investing in general. 1) J Collins' Stock Series, a series of blog posts that cover the basics of investing in a very approachable way. 2) the Boggleheads Getting Started guide which covers much of the same material and has a ton of articles about pretty much everything.

Good luck! And keep asking questions!

[prdycool]

Thanks for your input! I'll try to read some of the resources you suggested, but I usually don't make it very far before my eyes begin to cross...I don't know what it is about finances that my brain can't comprehend. I have an assigned financial adviser for free through work but he didn't seem very helpful. Do you recommend getting a financial adviser? Not that I don't want to learn, but I don't want to waste the time it would take for me to understand everything when I could have someone get things set up for me asap.

A new question (or mindset to apply to the previous question), I'm thinking about becoming a stay at home mom in the next 2-5 years. I would love to work from home but that is difficult in my field, maybe I will work part time or switch fields and take a pay cut. I'd like to be able to live off some of my savings in addition to some of my partner's money, like a mini retirement. Can I start withdrawing money from any of my accounts at that time without actually being "retired", and if so, which ones? How much money do you need in the accounts before you can start taking out the earnings without penalty? Knowing that this is my tentative plan, how does this change where I put my money now? Focus more on brokerage and a 457 accounts?

Thanks again!

[Huskie87]

Full disclosure... I work in the investment division at a wealth management firm.

I am torn on recommending that you seek a financial advisor, because more than half of them are greedy and only slightly more educated than you can become within 10-25 hours of reading.  I work for a firm that is a fiduciary (legally required to act in our client's best interest) but most are not.  There are many out there that do more damage than good.

On the other hand, you have more questions than you are probably aware of and would greatly benefit from a healthy conversation with an educated advisor.  Mistakes like pulling money from the wrong account too early can come with penalties from the IRS.  They can also have tax ramifications that could easily be avoided.  Since you've already stated that reading up on this subject is not interesting for you, despite the tremendous benefits, I'm inclined to think that you would find value in, and benefit from, some professional help.

So I have a few options for you...

One, seek the help of an online only advisor, such as Vanguard or something like Future Advisor.  You would greatly benefit from building a financial plan, which would help you understand the pros and cons of taking a mini-retirement.  Without a lot more info, no one can answer that question for you.  Also, these companies, especially Vanguard, are highly ethical and will provide much more good than bad.

Two, seek out a fee-only financial advisor/planner who is a fiduciary.  Ask them to build you a financial plan for a flat fee, meaning you pay them say $500 for a full financial plan that they will deliver to you and review.  This is different from what most advisors will do because there is no ongoing relationship after the plan, and therefore the advisor will not make money off of investing your dollars.  This will help you avoid a situation in which the advisor sells you a high commission product or a high fee product that will hurt you in the long run.  I'd recommend that you google 'fiduciary _(name of your town)_' or 'fee only financial plan _(name of your town_'.  Avoid places such as Waddell & Reed, Ameriprise, LPL Financial, etc, as these are places for the less qualified advisors among the industry.

The third option is DIY through learning.  This is the approach most on this site take because the reward is well worth the effort, but it's not for everyone.  It takes hard work, and a genuine interest in the subject. 

Regardless of which option you take, I'd recommend going slow and checking back with people on this site to verify what others are telling you.  I hope this helps.

 

[Huskie87]

Just to answer a question that you did ask directly... 

Generally people invest in mutual funds.  American growth fund A is a mutual fund, just like the others you listed.  A mutual fund is simply a way of buying shares of stocks or bonds with one simple move, rather than going out and buying individual stocks and bonds yourself.  You buy a mutual fund, and that fund goes out and does all the assembly for you. 

American Growth Fund A, for example, is an equity fund.  It buys shares of stock, which is ownership in a company.  They own shares in Union Pacific, Apple, Yahoo! and many more.  In total this fund holds stock in 237 companies.  So by owning this mutual fund, you are in fact a part owner in 237 of America's largest corporations.  In return for assembling this portfolio, the mutual fund is charging you 0.66% per year.  So if you had $10,000 invested, they'll charge you $66 per year to manage it.

You might think, 'wow, that doesn't seem too expensive and I own 237 companies!'.  However, a somewhat similar fund would be the Vanguard Total Stock Market fund.  Again, this is a mutual fund like your fund is.  This fund though owns a portion of 3,588 American companies and they only charge 0.16%.  So if you invest $10,000 here, you'll only pay $16 per year...or save $50 for every $10,000 you invest.

Not only do you save money, but you're much more diversified.  A good advisor would understand the differences here and recommend the Vanguard fund over the Fidelity fund.

All that being said, I think you'd benefit from using a target date fund.  This is again a mutual fund, but one that you can invest in and, for the most part, not look at.  For someone that hates this stuff, this is good enough.  If what I've written in this post and the prior is boring the crap out of you then this might be the right approach.  Go to the link below, find your age, buy that fund.

https://investor.vanguard.com/mutual-funds/target-retirement/#/