Poll

Given all previous accounts have been liquidated to cash prior to the transfer, would you...

Buy all the new holdings day 1?
Buy equal portions each month for the next 6 months?
Hold off until after the election?
Hold off until the next significant (say 10% or more) correction and buy cheap?

Author Topic: Moving everything to Vanguard, need advice  (Read 3407 times)

CrankAddict

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Moving everything to Vanguard, need advice
« on: August 11, 2016, 11:49:51 AM »
Hi Everyone,

Quick background - I have been investing in an IRA and 401k for the last 18 years (I'm self employed).  I originally started with a Simple plan, then eventually opened an Individual 401k to allow for more contributions in good years.  I have worked with 4 different advisers over that period of time, the last of which I bailed from this week after determining how much more money I'd have now if I had gone to an all-index-fund portfolio 1 year ago, 3 years ago, 5 years ago, etc.  I also have a Roth IRA for my daughter (she's 20) that won't get much in the way of new contributions but that I want to grow for the next 30 years.

I'm opening up the whole array of new accounts at Vanguard and while that multi-week process takes place I have had the previous accounts all liquidated to cash a) because Vanguard said that would be a good first step in the process and b) with the market at a high right now I figured it couldn't hurt and c) I had such a hodge podge collection of BS that the various advisors had put me in, I just wanted to wash my hands of it all and start fresh with Vanguard offerings.

So, while I know there are many strong opinions on never pulling everything out of the market, given that I'm already in all cash, and given that this crazy election is coming up bringing unknown levels of unknowns, I'm just curious what the Mustachian Hive Mind thinks.  I know many of you have written to not try and time the market, but would this be an exception or not?  Obviously there is no way to give a definite answer here which I why I created a poll just to get a sense of the overall feelings.

Feel free to add any other thoughts though, I'm trying to absorb everything I can on this topic and take control of my future once and for all.  Very glad to have found this place!

Mr.GrowingMustache

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Re: Moving everything to Vanguard, need advice
« Reply #1 on: August 11, 2016, 01:15:52 PM »
Statistically.... Day 1 is most beneficial.

I was in similar position last year with about $20k in liquid cash, and did a 2x lump sum investment. I invested in one of the peaks in 2015, and immediately there was a significant drop, then by the time I invested the other $10k, there was another drop lol.
And that account is still about -4% (ETF stocks), while my dollar cost averaging account is up by 4%


You never know, it could be the exact opposite and you can see a jump.

Based on a gut feeling, I would probably invest every week over 2-3 months.

Disclaimer: "gut feeling" is not a recommended investment tool :)

bobechs

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Re: Moving everything to Vanguard, need advice
« Reply #2 on: August 11, 2016, 02:57:43 PM »
Following, just to see if anyone comes up with anything better than "who knows?"

(Which is also the best that I can come up with, too...)

tonysemail

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Re: Moving everything to Vanguard, need advice
« Reply #3 on: August 11, 2016, 04:15:06 PM »
it sounds like you liquidated a portfolio which may have large capital gains.
did you already figure out how much to withhold to pay taxes next year?
do you need to pre-pay some estimated taxes?

why are you investing your daughter's roth ira?
shouldn't she be responsible for it at age 20?

Jack

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Re: Moving everything to Vanguard, need advice
« Reply #4 on: August 11, 2016, 04:41:49 PM »
First of all, you only mentioned various kinds of tax-advantaged accounts, so I'm hoping that's all you have. (Blindly liquidating a taxable account with any sort of significant balance would be a Very Bad Thing.)

Second, you're thinking about this all wrong: the question is not "should I invest this cash now or later," the question is "if I had been invested in the all-index-fund portfolio to begin with, would I now choose to liquidate to cash or would I stay invested?" If the latter, then "buy the new holdings on day 1" is clearly the best choice.

Third, the real risk you are concerned about is volatility during the gap between selling the old securities and buying the new ones. The best way to avoid this risk is to do an "in-kind transfer." However, that's not an option for you since you already liquidated the old stuff, and you wanted to own different stuff anyway. The second-best plan (possibly) would be to hedge against the risk by using some kind of options strategy. (Note: I have no idea how the mechanics of this sort of thing actually works, just that it's possible. Somebody else should be along shortly to clarify.) The third-best plan is to simply minimize the gap between the sell and the buy, which again suggests "buy the new holdings on day 1" is the best choice.
« Last Edit: August 11, 2016, 05:41:29 PM by Jack »

seattlecyclone

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Re: Moving everything to Vanguard, need advice
« Reply #5 on: August 11, 2016, 04:53:49 PM »
Ignore the fact that you're transferring your money between brokerages right now. That's a distraction to the real issue. The question you have to ask yourself is if your cat somehow trampled your keyboard in just the right sequence so that all of your mutual funds were liquidated, would you buy right back in as soon as you discovered what happened, or would you slowly reinvest over the course of the next six months?

CrankAddict

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Re: Moving everything to Vanguard, need advice
« Reply #6 on: August 11, 2016, 07:37:04 PM »
it sounds like you liquidated a portfolio which may have large capital gains.
did you already figure out how much to withhold to pay taxes next year?
do you need to pre-pay some estimated taxes?

why are you investing your daughter's roth ira?
shouldn't she be responsible for it at age 20?

My understanding is that as long as I'm transferring the old IRA account money to a new Vanguard IRA and the old Individual 401k money to a new Vanguard Individual 401k that there are no taxable events.  If that is not correct then both Vanguard and my previous firm did me a huge disservice.  I do not have any accounts that have been contributed by after-tax dollars, with the exception of my daughter's Roth IRA.  That was previously with State Farm and they told me that as long as the funds were put into a different Roth within 30 or 60 days (can't recall which) that there was no issue there either.

As to why I'm involved with her IRA, as a small biz owner I employed her for several years during high school.  90% of her earnings went into the Roth.  We filed tax returns for her those years but because her total earnings were below the minimum, there were no taxes.  With those funds being put in the Roth there was no tax before, and there will be no tax later.  I don't plan to contribute to it any more but I intend to manage it and let it grow and give it to her as a surprise gift someday when she's about 50 (she currently does not know about this account nor do I want her going through life waiting for some kind of pay-out)

Second, you're thinking about this all wrong: the question is not "should I invest this cash now or later," the question is "if I had been invested in the all-index-fund portfolio to begin with, would I now choose to liquidate to cash or would I stay invested?" If the latter, then "buy the new holdings on day 1" is clearly the best choice.

That's a good way to look at it.  I've just been SO beat down in my investing career that I suppose I'm irrationally temped to try to "make up a little" by timing something for once.  I started investing in 2000.  From 2000 until today, the S&P is up 42%.  That's 2.2% per year on average.  And factor that I've been paying a broker all along and I don't think I'm too far off in saying that my 16 years of retirement might as well have been put in a checking account.  Take the 16 year period prior to this one and the S&P was up 856% or 14% per year.  Now I never, ever expected to get close to that.  I would have been thrilled with a supposedly modest 8% return.  But 2%?  It just pisses me off because my entire life I was told that a house and the stock market were two sensible investments to grow wealth and yet the way I've timed both I've lost money or broken even across the board.

kenaces

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Re: Moving everything to Vanguard, need advice
« Reply #7 on: August 11, 2016, 08:36:23 PM »
nobody know if the market is at a top!

SPY is up more than 2.2% since 2000, maybe you are forgetting the dividend?

what asset allocation are you planning on using?

tonysemail

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Re: Moving everything to Vanguard, need advice
« Reply #8 on: August 11, 2016, 09:07:00 PM »
My understanding is that as long as I'm transferring the old IRA account money to a new Vanguard IRA and the old Individual 401k money to a new Vanguard Individual 401k that there are no taxable events.  If that is not correct then both Vanguard and my previous firm did me a huge disservice.  I do not have any accounts that have been contributed by after-tax dollars, with the exception of my daughter's Roth IRA.  That was previously with State Farm and they told me that as long as the funds were put into a different Roth within 30 or 60 days (can't recall which) that there was no issue there either.

oh, ok.. my mistake.  I falsely assumed there was some in taxable accounts.

seattlecyclone

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Re: Moving everything to Vanguard, need advice
« Reply #9 on: August 11, 2016, 11:04:17 PM »
As to why I'm involved with her IRA, as a small biz owner I employed her for several years during high school.  90% of her earnings went into the Roth.  We filed tax returns for her those years but because her total earnings were below the minimum, there were no taxes.  With those funds being put in the Roth there was no tax before, and there will be no tax later.  I don't plan to contribute to it any more but I intend to manage it and let it grow and give it to her as a surprise gift someday when she's about 50 (she currently does not know about this account nor do I want her going through life waiting for some kind of pay-out)

I can't really support this. This money is no longer yours to "give" her. It already belongs to her. She earned it. As her legal guardian you were within your rights to manage it for a while, but that time has passed. You should turn over control of the account to her as soon as possible.

Jack

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Re: Moving everything to Vanguard, need advice
« Reply #10 on: August 12, 2016, 08:26:58 AM »
As to why I'm involved with her IRA, as a small biz owner I employed her for several years during high school.  90% of her earnings went into the Roth.  We filed tax returns for her those years but because her total earnings were below the minimum, there were no taxes.  With those funds being put in the Roth there was no tax before, and there will be no tax later.  I don't plan to contribute to it any more but I intend to manage it and let it grow and give it to her as a surprise gift someday when she's about 50 (she currently does not know about this account nor do I want her going through life waiting for some kind of pay-out)

She's an adult, and it's her account -- not yours. Tell her about it!

(Feel free to teach her how Roth IRAs work and impress upon her that it would be a disastrously bad idea to withdraw the money before she's retired, of course. Or better yet, have her create her own account here too.)

That's a good way to look at it.  I've just been SO beat down in my investing career that I suppose I'm irrationally temped to try to "make up a little" by timing something for once.

That sucks, but it's a sunk cost. Don't let it cause you to make mistakes in the future.

CrankAddict

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Re: Moving everything to Vanguard, need advice
« Reply #11 on: August 12, 2016, 09:54:24 AM »
I congratulate you guys on having kids who give a damn but my daughter is much more interested in keeping up with the Kardashians than the markets.  We'll see what the rules are when things get over to Vanguard but as of Tuesday when the account was liquidated I was listed as the custodian and State Farm never even asked for her consent or information to liquidate the account.  As well, to address this between the lines notion that I'm somehow "keeping her money", she was paid (by me) a ludicrous salary of $450/month to essentially clean my 1 room home office once a week during high school.  $50 of that went to her as do-what-you-want money and $400 went into this Roth.  Clearly $450 is above the market value for vacuuming 100 sq ft 4 times, so I don't think this was an unfair deal for her.  Couple that with the fact that I have and continue to pay for every dollar of her food and rent ($1200/month), college tuition ($13k/year), car expenses ($980 repair bill just yesterday) and I don't feel too guilty about trying to keep her $21k Roth under my management and to hopefully have it grow to be a nice surprise later in life.  If you guys feel she's getting shafted, I'm not sure what else to tell you.

tonysemail

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Re: Moving everything to Vanguard, need advice
« Reply #12 on: August 12, 2016, 10:06:04 AM »
I don't think anyone is accusing you of greed or bad motives.
In fact, I think it's incredibly generous of you to start funding her retirement while working on your own!
I just see it as a teaching moment.
Right this minute may not be the perfect time for the reasons you mentioned.
But I would not choose to wait until age 50 either.

We'll see how I handle this issue when my own kids reach young adulthood.
I have custodial accounts for them which I plan to turn over at the legally mandated age.

With This Herring

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Re: Moving everything to Vanguard, need advice
« Reply #13 on: August 12, 2016, 12:35:26 PM »
As to why I'm involved with her IRA, as a small biz owner I employed her for several years during high school.  90% of her earnings went into the Roth.  We filed tax returns for her those years but because her total earnings were below the minimum, there were no taxes.  With those funds being put in the Roth there was no tax before, and there will be no tax later.  I don't plan to contribute to it any more but I intend to manage it and let it grow and give it to her as a surprise gift someday when she's about 50 (she currently does not know about this account nor do I want her going through life waiting for some kind of pay-out)

I can't really support this. This money is no longer yours to "give" her. It already belongs to her. She earned it. As her legal guardian you were within your rights to manage it for a while, but that time has passed. You should turn over control of the account to her as soon as possible.

I congratulate you guys on having kids who give a damn but my daughter is much more interested in keeping up with the Kardashians than the markets.  We'll see what the rules are when things get over to Vanguard but as of Tuesday when the account was liquidated I was listed as the custodian and State Farm never even asked for her consent or information to liquidate the account.  As well, to address this between the lines notion that I'm somehow "keeping her money", she was paid (by me) a ludicrous salary of $450/month to essentially clean my 1 room home office once a week during high school.  $50 of that went to her as do-what-you-want money and $400 went into this Roth.  Clearly $450 is above the market value for vacuuming 100 sq ft 4 times, so I don't think this was an unfair deal for her.  Couple that with the fact that I have and continue to pay for every dollar of her food and rent ($1200/month), college tuition ($13k/year), car expenses ($980 repair bill just yesterday) and I don't feel too guilty about trying to keep her $21k Roth under my management and to hopefully have it grow to be a nice surprise later in life.  If you guys feel she's getting shafted, I'm not sure what else to tell you.

IANAL, but what you are doing may be illegal now, and probably will be illegal once she turns 21.  If you live in the US, she became an adult at 18, which is something you might consider.  If you reported the money as wages to her, it is her money.  It is too late to say "I paid her over market rate" or anything similar.  If she had another job through high school, had spent all of the earnings, and you had gifted her an equal amount as contributions to a Roth IRA in her name, IT WOULD STILL BE HER MONEY.  None of us think you have bad intentions; none of us think she is "getting shafted."  We understand that you are still supporting her.  We agree that the money is probably safer under your control.  Unfortunately, it is up to her to make good decisions.  You can't really stop her from making mistakes, though you can certainly give her good advice.  "Here is your Roth IRA account that has been funded with your earnings/gifts from me during high school.  Generally, you don't withdraw funds from these accounts until you are retired.  I would hope that you would add to this account and fund other retirement accounts, as saving a little bit now will make life a lot less stressful in the future."

For some perspective, if your own parents had put all your birthday money from relatives in a checking account and just told you about it now, how would you react?  Yes, you'd be happy about the windfall, but what if it had been invested in a money market fund to earn cents each month?  What if you could have really used the money X years ago to make a larger downpayment on your house at a time when interest rates were very high?  You would feel cheated that they had kept this from you for so long.  They would have overreached their authority as parents.  When should they have turned it over to you?  What about other parents who never want to cut the apron strings and let their children be adults?  Parents who still don't think their children capable at age 50?  There are reasons that the law states a specific age instead of leaving it up to your discretion.

From what I remember from hitting my majority, the financial companies didn't tell my parents "Hey, now is the time," my father and I had to contact them and get the accounts fixed.  I don't know if these companies assume that your daughter is mentally disabled or otherwise legally incompetent or if there is just no warning in their system to say "account should be in daughter's control by this point, father does not have authority to make this move."

MustacheAndaHalf

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Re: Moving everything to Vanguard, need advice
« Reply #14 on: August 12, 2016, 07:08:12 PM »
Maybe you should have turned the account over to her at age 18, but you thought it was age 21.  I think that's the tactic you should use - tell your daughter about the account for her 21st birthday.  It's one thing to neglect an account a few years, another thing to hide someone's money from them for decades.  That's why I'd suggest you consider it some kind of innocent mistake, and provide the account to your daughter as part of her 21st birthday.

Jack

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Re: Moving everything to Vanguard, need advice
« Reply #15 on: August 12, 2016, 07:40:06 PM »
I'm not sure if this is actually a valid concern, but I also think she should be told about the account just because she's responsible for knowing about her financial assets. What if she were required to disclose them to a court or the IRS or something? Maybe she could be held in contempt/fined/etc. for something that would be your fault.

CrankAddict

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Re: Moving everything to Vanguard, need advice
« Reply #16 on: August 13, 2016, 08:49:43 AM »
These are all valid points and I do appreciate the input.  As I said, I will definitely find out from Vanguard what their rules are when this account gets moved over.  State Farm knows her age and did not seem to care about the transition from minor to adult at all (which occurs at 19 in our state, fwiw), kept me listed as custodian, and did not ever ask for her input or consent even on something as large as liquidating/closing the account.  Rest assured I will explore it more.

To the original point of the thread, thank you to the 25+ of you who voted in the poll.  The results are pretty black and white and definitely ease my mind on the decision!

MoonLiteNite

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Re: Moving everything to Vanguard, need advice
« Reply #17 on: August 19, 2016, 07:33:39 PM »
Buy all the new holdings day 1? - no more risk than normal

Buy equal portions each month for the next 6 months? - you are averaging, so you COULD lose money if the market goes up sooner rather than later. You COULD make more gains if the market dips early on. Fact is market is up more often then down

Hold off until after the election? - If you think the market is going to tank, sure? but there is a chance it won't

Hold off until the next significant (say 10% or more) correction and buy cheap? - Just luck, if the market dips in a timely matter, you make more money. If it takes forever for a dip, then you buy, it could be higher than just buying right now