Author Topic: Moving Money  (Read 3874 times)

blueflipflop

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Moving Money
« on: December 07, 2013, 08:54:28 AM »

Wanted to get some input on what to do with an investment and where to move it.

Currently have roughly 5,000 and some change in AGHTX Class A Mutual Fund with about 120 shares, this was once a CD that a family member bought for me which has now matured and I am thinking about rolling all the money into an index fund. In looking at the performance of the fund, which I have had for quiet some time it's ten year return has been .77.

- Should I move this money to an index fund or just let it sit? It appears this fund got hit really hard in the recession but has done fairly well since.

Second question/idea. I have 12,000 sitting in a high interest savings account. This is my emergency fund. I have been considering talking 6,000 of that and putting it in some different index funds.

My initial thoughts were to put a little in each month so that I enter the market  when shares are at varying price points to get an average. It appears though that if I were to choose something like Vanguards fund (VTSMX)  I would have to start with a $3,000 minimal investment, and I might as well dump all of the 6,000 in. 

- Should I dump 6,000 into one fund? Should I invest in different index funds international/S&P, etc. ?

My goal would be to leave money in the index fund as another retirement vehicle or for ER. Currently I have 13,000 in a IRA Roth, 12,000 a six month emergency fund, 2,000 in savings, 5,000 in the mutual fund.

I am 28 years old and would like to retire early or be able to take mini retirements without worrying about the need to find a job immediately upon return. 

Any thoughts ideas would be useful, majority of the books I have read and of course MM are big proponents of index funds a investment strategies but I am open to other ideas (except annuities!).

Cooperd0g

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Re: Moving Money
« Reply #1 on: December 07, 2013, 10:26:20 AM »
I always recommend index funds over any actively managed funds. Historical data shows that they outperform just about everything in the long run. They are also simple and have built in diversity which makes them easy to handle and covers virtually the entire market. A lot will depend on your desired asset allocation and you say you are pretty aggressive. Here are my recommendations for you:

If you want to stay with just one fund you have a few options:
Put all $12k into VTSMX and you have coverage of the entire US stock market.
Put all $12k into VTWSX and you have coverage of the entire world stock markets, but it is a bit heavier weighted on foreign that I like (48% and my preferred is 30%)
Put all $12k into a Vanguard Target Retirement fund that meets your age or desired asset allocation will get you US Stock/bond, International Stock/bond exposure. This typically runs the stocks as 70/30 US/foreign along my preferred mix. The one downside is that the bonds are income producing and you will have to pay tax on their earnings each year if they are outside of 401(k)/IRA investments.
Put all $12k into a Vanguard LifeCycle fund with your desired asset allocation. Pretty much the same make up as the Target Retirement, but you pick the mix and it doesn't change. Same tax impactions with the bonds though.

You can also choose to use two or three funds of your own, but it starts to get more complex. If you want to be all stocks and have US/World at 70/30 then you can put $7700 into VTSMX and $4300 into VGTSX. If you want to add bonds to get to a 3 fund portfolio you can use VWITX which is a tax exempt municipal bond fund.

So it comes down to just how involved do you want to be. Do you want to be all stocks? Are you worried about having to pay the extra tax on the bonds? (probably not with not that much in there with your current amount) Do you want to have to rebalance the funds each year or have it automatic? Personally I favor simplicity so I would either put it all in the VTSMX or a Target Retirement.

For reference about the 70/30 mix of US/world check out Rick Ferri's article about the efficient frontier of the mix and the associated risk/reward. Basically you may lose a 1% of top performance, but prevent several percent of loss. http://www.rickferri.com/blog/investments/foreign-stocks-for-the-long-run/

For reference to the Boglehead investment philosophy which discusses simplicity and index funds check here: http://www.bogleheads.org/wiki/Bogleheads®_investment_philosophy
For reference to the 3 fund way of investing check here: http://www.bogleheads.org/wiki/Three_fund_portfolio

blueflipflop

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Re: Moving Money
« Reply #2 on: December 07, 2013, 11:05:51 AM »
Awesome this is great advice!

 I think I am going for simplicity, I am still scratching my head a little bit on how to rebalance and think I am definitely a passive investor, so I don't want to have to tinker around too often.

I will check out the articles you recommended, I have been wanting to read the Bogleheads book but can't find it at the local library or used bookstore. I may need to bite the bullet and check out Amazon. 

Thanks again! I have lots of reading to do.

Cooperd0g

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Re: Moving Money
« Reply #3 on: December 07, 2013, 12:06:47 PM »
Depending on where you live your library may be connected with a larger county/city system. I know where I have my library account we can search online and request books be delivered to our neighborhood library so that might broaden your search. Also, my library system has digital lending of books and audiobooks. I looked at it a few years ago and it was difficult to use, but now it is super simple. Research that before buying them. Heck, maybe someone will mail one to you for the cost of postage if you'll mail it back when you are done.

engineerjourney

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Re: Moving Money
« Reply #4 on: December 07, 2013, 09:10:32 PM »
How many months of living expenses is your $12K emergency fund?  How stable is your job?  You might want to keep it in the saving account and just invest your surplus money after bills every month.  That will dollar cost average your investing automatically.  If you haven't maxed out your Roth for the year go for that.  Does your job have a 401k?  If you are not contributing a lot to that then think of upping your % before investing in a taxable account.  (As in right now I have excess of $ in savings and upped my 401K contribution to 50% of my paycheck and can use the extra in savings to cover any expenses over my lower than usual take home).  Obviously that depends on what tax bracket you are in. Hope that makes sense!

blueflipflop

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Re: Moving Money
« Reply #5 on: December 08, 2013, 07:11:23 PM »
My emergency fund is for 6 months, I suppose I just feel like half of it could be doing more work elsewhere. Instead of taking out half I could pull an initial 3000 as the minimum contribution to an index fund and replace it within 3-6 months.

My job is very stable and I am getting into a little bit of contract work on the side as well. My job does not have a 401k as I pay into a state retirement system which is automatically deducted from each pay check. I could look into a 403b but they do not offer matching so I feel like it would make more sense to invest elsewhere. (I am not considering the state retirement as part of my long term retirement calculations because I am not sure I will stay with the state long enough to receive payments during retirement, plus you just never know what might happen in the future depending upon how the fund is managed)

I have a maxed out my Roth for this year, in all actuality I probably will not touch the six month emergency fund and just roll the mutual fund shares into an index fund. I have been hesitant to touch the emergency fund, although I can't put my finger on why.

@Cooperd0g, I have looked into interlibrary loan at my library for some reason their system is hard to work, I will give it a try again though.

Cooperd0g

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Re: Moving Money
« Reply #6 on: December 08, 2013, 07:50:14 PM »
My library system online was tough for digital loans a couple of years ago too. I just looked at it again recently because something caught my attention and it is really easy now. But all systems can be different. BTW, I have the Bogleheads guide to investing and retirement books on Kindle. I looked into it yesterday and they are loanable. PM me if you want to borrow one. To be honest, you can get virtually all you need to know out of the Bogleheads wiki.
« Last Edit: December 09, 2013, 11:00:13 AM by Cooperd0g »

wtjbatman

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Re: Moving Money
« Reply #7 on: December 08, 2013, 08:28:11 PM »
To be honest, you can get virtually all you need to know out of the Bogleheads wiki.

Bogleheads.org is a great source of information, and those guys really know their stuff. But if you read their forums, be aware some of them take things very seriously, and you're going to see some odd behaviors. For instance they will usually offer advice if you ask, but it frequently comes with disclaimers saying their advice is for education purposes only, they are not acting in a capacity as a financial adviser, etc. Maybe Bogleheads get sued a lot?