Author Topic: Question on Investments in Roth IRA, 401k, and regular account?  (Read 5299 times)

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 2856
  • Location: Orange County, CA
Question on Investments in Roth IRA, 401k, and regular account?
« on: November 12, 2014, 11:11:57 AM »
Hey all,

So I have a Roth IRA and 401k (both Roth and Traditional through my company) setup that I'm contributing to. Maxing out the Roth IRA but not quite on the 401ks at this point in time. I also have a regular individual account (taxed) with some mutual funds in it. All of these through Fidelity. My stocks are mainly through Scottrade and I have a handful there but not much.

I wanted to ask more around the Fidelity stuff though - the mutual funds I bought in the individual/taxable account are a few of the same that I have in my Roth IRA. My wife actually has a Roth IRA too and between both our Roths, I ended up purchasing the same mutual funds (of course different quantities). Is this the best strategy though? I know it's good to "diversify" but if I wanted to just get my feet on the ground and a little more set, is this OK to do? For my individual account, I think I should add more to it as I only have three mutual funds with a few thousand each. What holds me back is taxes - I have very little experience handling taxes when mutual funds and stocks come into play. When I made a big stock cash-out years ago, I had to go to HR Block because I really had no clue how to do anything. They made it look so easy but I was totally confused. Anyway, the reason I'm more comfortable just buying mutual funds with the tax-deferred accounts is because I know I won't have to deal with it as much when it comes to the interest and stuff. For regular accounts though, I'm not as comfortable but that also doesn't mean I shouldn't do it.

In short: assuming it's good to continuing growing this individual/taxable account, any strategies on the best way to go about it? I have a bit more money saved in our "home down payment" account and think it's better just to invest it right now since I doubt we'll be seeking out a new home anytime soon. I would probably move some over to this individual account and invest more. I originally opened the individual account just to 'dabble' a bit with mutual funds but haven't really done much with it otherwise.

The other option is to continue growing and buying more stocks via the Scottrade account, but that seems a bit riskier.

Any advice would be appreciated. Thanks!
« Last Edit: November 12, 2014, 11:16:06 AM by jplee3 »

Asclepius

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #1 on: November 12, 2014, 01:17:38 PM »
What tax bracket are you in?

http://www.schwab.com/public/schwab/nn/articles/Taxes-Whats-New

If you and your wife file jointly and your taxable income is less than $73,800 per year, your tax rate for long term capital gains and qualified dividends is zero percent. Your 401k contributions and other deductions may help keep you below the $73,800 adjusted amount. The Roth IRA doesn't really give most people a huge tax advantage. In a year where you are selling a ton of stocks to pay for your house down payment, and potentially bumping yourself into a higher bracket, you should consult a really good tax advisor about how to do that properly (not H&R block). Look for a CPA.

You mentioned risk. Mutual funds are actually quite a bit riskier than the people at Edward Jones want you to believe. When you are invested in a mutual fund, you are exposed to the full panic of the other human beings who have money in that mutual fund. The stock market dips, they panic and sell, causing prices to drop further. Right when the mutual fund manager should be using new capital to invest in the good deals, he has to then sell at the low to cover panicky people who are liquidating.

If your comfort level with investing is low, it may be more beneficial to stick to low-cost index funds. Statistically they do just as good or better than expensive actively managed funds (look for the "expense ratio" number in your prospectus). When you get more comfortable start learning about dividend growth stocks. Don't get discouraged if you make a few mistakes here and there while you're learning. Definitely start reading more about capital gains taxes to boost your confidence in this area.


wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 35
  • Location: Missouri
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #2 on: November 12, 2014, 05:08:00 PM »
Any advice would be appreciated. Thanks!

We can't possibly give you helpful advice without knowing what "mutual funds" you are invested in. Are they index funds? We need the fund tickers and names.

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 2856
  • Location: Orange County, CA
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #3 on: November 12, 2014, 05:23:16 PM »
Any advice would be appreciated. Thanks!

We can't possibly give you helpful advice without knowing what "mutual funds" you are invested in. Are they index funds? We need the fund tickers and names.

Thanks! We're in the 28% bracket btw and are filing jointly. Our taxable income is above $73,800. I haven't been selling any stocks to fund a down-payment but rather the funds came from just putting away a large chunk of money every other month. We have close to $200k saved up in a California Muni Money Market.

What are some examples of "low-cost index funds" that you refer to? I feel like I keep seeing this term but have very little knowledge to differentiate. I've tried to pick funds based on low expense ratios and fees.

As far as the mutual funds we have, here's a list:
CA Muni Money Market fund (this is where I'm holding a lot of the funds that I haven't yet allocated to anything else - I have almost one per account below)
FCFXX

Account passed from my dad:
FDVLX
FSCGX

Individual:
FEQIX
FEXPX
FGMNX

Roth IRAs:
FDRXX
FBALX
FBSOX
FDSVX
FEQIX
FGMNX
FGOVX
FGRTX
FPURX

401k:
PYR INX LFC 2045 V

Last company's 401k:
FFIMX
FIFFX
FRTXX
FSCIX
FSRIX
MADVX

« Last Edit: November 12, 2014, 05:24:48 PM by jplee3 »

skyrefuge

  • Handlebar Stache
  • *****
  • Posts: 1007
  • Location: Suburban Chicago, IL
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #4 on: November 12, 2014, 09:08:06 PM »
Oh my. You might have set the record for the craziest portfolio I've seen here.

You are correct that it is good to diversify. But you do not diversify by buying a ton of different mutual funds. You diversify by buying a small number (1 to 4) of mutual funds that themselves are well-diversified.

At least one of your funds, FIFFX is extremely well-diversified. It holds over 5000 stocks and 1300 different bonds. Almost every other fund you buy will just be holding a subset of those stocks and bonds, and thus, add nothing to your diversity. They only add to your confusion and complexity.

In short, yes, it makes complete sense to purchase the same fund in different accounts, at least if those funds are diversified, total-market type funds.

(technically, you can do some optimization by splitting your fund locations between taxable and tax-advantaged accounts, but even if you completely mirror the 1 to 4 funds in your taxable account with the 1 to 4 funds in your tax-advantaged accounts, you'd still probably be better off than you are now!)

The good news is that it looks like you have a lot of money saved up, which is way more important than *where* it is saved up, but there's a lot more you can do to optimize (getting that $200k out of money market would be a good start!)

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 2856
  • Location: Orange County, CA
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #5 on: November 13, 2014, 12:20:11 AM »
Oh my. You might have set the record for the craziest portfolio I've seen here.

You are correct that it is good to diversify. But you do not diversify by buying a ton of different mutual funds. You diversify by buying a small number (1 to 4) of mutual funds that themselves are well-diversified.

At least one of your funds, FIFFX is extremely well-diversified. It holds over 5000 stocks and 1300 different bonds. Almost every other fund you buy will just be holding a subset of those stocks and bonds, and thus, add nothing to your diversity. They only add to your confusion and complexity.

In short, yes, it makes complete sense to purchase the same fund in different accounts, at least if those funds are diversified, total-market type funds.

(technically, you can do some optimization by splitting your fund locations between taxable and tax-advantaged accounts, but even if you completely mirror the 1 to 4 funds in your taxable account with the 1 to 4 funds in your tax-advantaged accounts, you'd still probably be better off than you are now!)

The good news is that it looks like you have a lot of money saved up, which is way more important than *where* it is saved up, but there's a lot more you can do to optimize (getting that $200k out of money market would be a good start!)

LOL! Thanks for the advice. Hahaha, so should I sell off some of the stuff in my Roth IRAs then? It sounds like the Individual is OK for the time being at least. I actually recently bought a few more different funds in the Roth IRAs so maybe it would be good just to sell? As far as moving on the $200k, I'll probably start moving some of it to the individual. Or maybe I'll just get more mutual funds. Is there a strategy with buying more quantities of a mutual fund? Obviously the price, we would hope, continues to grow on the mutual fund(s) but does that mean we keep reinvesting in it and buying more of it? I guess that's the part I'm not as clear about as well.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 35
  • Location: Missouri
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #6 on: November 13, 2014, 08:33:44 AM »
LOL! Thanks for the advice. Hahaha, so should I sell off some of the stuff in my Roth IRAs then? It sounds like the Individual is OK for the time being at least. I actually recently bought a few more different funds in the Roth IRAs so maybe it would be good just to sell? As far as moving on the $200k, I'll probably start moving some of it to the individual. Or maybe I'll just get more mutual funds. Is there a strategy with buying more quantities of a mutual fund? Obviously the price, we would hope, continues to grow on the mutual fund(s) but does that mean we keep reinvesting in it and buying more of it? I guess that's the part I'm not as clear about as well.

Your IRA is goofy too. Why do you have three separate expensive income funds? It doesn't make sense. If you don't need current income, you shouldn't hold even one of those funds.

Fidelity has some low cost funds. Look for Spartan Index Funds. https://www.fidelity.com/mutual-funds/index-funds/why-fidelity

You could do something as simple as Total Market Fund, International Fund, and U.S. Bond fund. Choose an AA that matches your needs/risk tolerance. If you're not sure, look at something like age-10 in bonds.

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 2856
  • Location: Orange County, CA
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #7 on: November 13, 2014, 08:44:36 AM »
LOL! Thanks for the advice. Hahaha, so should I sell off some of the stuff in my Roth IRAs then? It sounds like the Individual is OK for the time being at least. I actually recently bought a few more different funds in the Roth IRAs so maybe it would be good just to sell? As far as moving on the $200k, I'll probably start moving some of it to the individual. Or maybe I'll just get more mutual funds. Is there a strategy with buying more quantities of a mutual fund? Obviously the price, we would hope, continues to grow on the mutual fund(s) but does that mean we keep reinvesting in it and buying more of it? I guess that's the part I'm not as clear about as well.

Your IRA is goofy too. Why do you have three separate expensive income funds? It doesn't make sense. If you don't need current income, you shouldn't hold even one of those funds.

Fidelity has some low cost funds. Look for Spartan Index Funds. https://www.fidelity.com/mutual-funds/index-funds/why-fidelity

You could do something as simple as Total Market Fund, International Fund, and U.S. Bond fund. Choose an AA that matches your needs/risk tolerance. If you're not sure, look at something like age-10 in bonds.

Thanks! So for the Roth IRAs, I should just dump the FEQIX and FGOVX funds and go with something else instead? Are those useful to have anywhere else like with the regular account? Or are those just avoidable otherwise?

skyrefuge

  • Handlebar Stache
  • *****
  • Posts: 1007
  • Location: Suburban Chicago, IL
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #8 on: November 13, 2014, 09:37:24 AM »
LOL! Thanks for the advice. Hahaha, so should I sell off some of the stuff in my Roth IRAs then?

No, I actually think right now, you shouldn't do anything until you educate yourself. Right now you're like a stumbling drunk with a loaded gun in his hand, and we want to at least get that gun put down in a safe place before you accidentally blow your own nuts off.

I feel like you might still need to learn some of the very basics, like what a stock is, and what a mutual fund is. Do you have any idea why you've purchased each one of the funds that you've purchased? Do you know what they contain? If not, then there are better places to learn than Q&As in this forum.

For basic Internet reading, we generally recommend http://jlcollinsnh.com/stock-series/ and http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit around here. Absorb those, see how they relate to your current position, and then, with your head sobered up and your gun safely locked away, we'll be happy to help you navigate from there.

rugorak

  • Bristles
  • ***
  • Posts: 382
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #9 on: November 13, 2014, 11:45:29 AM »
No, I actually think right now, you shouldn't do anything until you educate yourself. Right now you're like a stumbling drunk with a loaded gun in his hand, and we want to at least get that gun put down in a safe place before you accidentally blow your own nuts off.

I feel like you might still need to learn some of the very basics, like what a stock is, and what a mutual fund is. Do you have any idea why you've purchased each one of the funds that you've purchased? Do you know what they contain? If not, then there are better places to learn than Q&As in this forum.

For basic Internet reading, we generally recommend http://jlcollinsnh.com/stock-series/ and http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit around here. Absorb those, see how they relate to your current position, and then, with your head sobered up and your gun safely locked away, we'll be happy to help you navigate from there.

I second this suggestion. You are all over the place. And way to complicated unless you spend a ton of time on this. For Fidelity you might want to consider consolidating to FUSVX and/or FSEVX if available. Both have expense rations of 0.07% and are big indexes. That would probably take care of your stock side and be plenty diversified.

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 2856
  • Location: Orange County, CA
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #10 on: November 13, 2014, 01:49:54 PM »
Thanks guy, I think my idea of "diversifying" is a little off base and I'm glad I cleared it up here finally. I was always never sure about my investment choices, and kind of chose to buy those mutual funds based on ratings and performance. I think I have a slightly better understanding now of what I've done and that I should simplify and go with some solid index funds. Seems jlcollinsnh is a big fan of Vanguard due to their 'specialization' in index funds and making another end-goal of lowering fees/expenses/costs. I may go ahead and open up an account with them after I decide whether or not to proceed with Fidelity.

I'm just not sure what to do with all the existing stuff I've already purchased and gotten myself into. I'm still reading through a bunch of the articles on the jlcollinsnh site in the meantime.

Also, he seems to keep talking about buying VTSAX, but the article is over 2 years old - is the information 'obsolete' as far as what one might want to buy TODAY? Or for an index fund, is VTSAX something everybody should consider buying still? I think it's at around $50 right now.
« Last Edit: November 13, 2014, 01:58:35 PM by jplee3 »

skyrefuge

  • Handlebar Stache
  • *****
  • Posts: 1007
  • Location: Suburban Chicago, IL
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #11 on: November 13, 2014, 03:13:38 PM »
Seems jlcollinsnh is a big fan of Vanguard due to their 'specialization' in index funds and making another end-goal of lowering fees/expenses/costs. I may go ahead and open up an account with them after I decide whether or not to proceed with Fidelity.

I think it's fine to just stick with Fidelity. They have funds equivalent to all the ones you'd want at Vanguard. FSTMX is the equivalent of VTSAX. If you were just starting out, Vanguard's history/structure might be a reason to choose them over Fidelity, but at this point, that's not enough benefit to outweigh the cost of having yet another account to manage.

I'm just not sure what to do with all the existing stuff I've already purchased and gotten myself into. I'm still reading through a bunch of the articles on the jlcollinsnh site in the meantime.

Keep learning. There's not a huge rush to do anything with any of your existing stuff; it might not be optimally allocated, and might not make any cohesive sense, but it's not going to make all your money disappear either. Once you develop a clear plan, then you can decide how to move things to fit your plan, and build from there.

When it comes time to move things around, be aware that the stuff in tax-sheltered accounts (IRAs and 401(k)s) can be moved around however you'd like (at least as those plans allow), while stuff in taxable accounts may induce capital-gains taxes, so you'll want to be a bit more careful with those. That will all be part of the plan you develop.

Also, he seems to keep talking about buying VTSAX, but the article is over 2 years old - is the information 'obsolete' as far as what one might want to buy TODAY? Or for an index fund, is VTSAX something everybody should consider buying still? I think it's at around $50 right now.

Concepts like "buying the entire stock market" (which is what VTSAX/FSTMX are) do not go "out-of-date". It was a great idea 2 years ago, it's a great idea today, and it will be a great idea 100 years from now (and would have been a great idea 100 years ago, if such funds existed then!) The funds keep themselves up-to-date by continually adjusting to track the changing universe of the total stock market.

The current share price of an index fund is perhaps one of the most irrelevant things in the universe, and there's no reason for you to ever know or care what it is. Keep reading. :-)

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 2856
  • Location: Orange County, CA
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #12 on: November 13, 2014, 03:23:10 PM »
Seems jlcollinsnh is a big fan of Vanguard due to their 'specialization' in index funds and making another end-goal of lowering fees/expenses/costs. I may go ahead and open up an account with them after I decide whether or not to proceed with Fidelity.

I think it's fine to just stick with Fidelity. They have funds equivalent to all the ones you'd want at Vanguard. FSTMX is the equivalent of VTSAX. If you were just starting out, Vanguard's history/structure might be a reason to choose them over Fidelity, but at this point, that's not enough benefit to outweigh the cost of having yet another account to manage.

I'm just not sure what to do with all the existing stuff I've already purchased and gotten myself into. I'm still reading through a bunch of the articles on the jlcollinsnh site in the meantime.

Keep learning. There's not a huge rush to do anything with any of your existing stuff; it might not be optimally allocated, and might not make any cohesive sense, but it's not going to make all your money disappear either. Once you develop a clear plan, then you can decide how to move things to fit your plan, and build from there.

When it comes time to move things around, be aware that the stuff in tax-sheltered accounts (IRAs and 401(k)s) can be moved around however you'd like (at least as those plans allow), while stuff in taxable accounts may induce capital-gains taxes, so you'll want to be a bit more careful with those. That will all be part of the plan you develop.

Also, he seems to keep talking about buying VTSAX, but the article is over 2 years old - is the information 'obsolete' as far as what one might want to buy TODAY? Or for an index fund, is VTSAX something everybody should consider buying still? I think it's at around $50 right now.

Concepts like "buying the entire stock market" (which is what VTSAX/FSTMX are) do not go "out-of-date". It was a great idea 2 years ago, it's a great idea today, and it will be a great idea 100 years from now (and would have been a great idea 100 years ago, if such funds existed then!) The funds keep themselves up-to-date by continually adjusting to track the changing universe of the total stock market.

The current share price of an index fund is perhaps one of the most irrelevant things in the universe, and there's no reason for you to ever know or care what it is. Keep reading. :-)

Thanks! I think I have a basic understanding of capital-tax gains (or at least the understanding that anything outside of my non-taxable accounts will incur charges once I start selling and what not). I'll keep reading through - I just recently started stressing over the future and finances so it's good to get some insight. Previously, I would rely on my dad, who really wasn't a big help at all to understanding all this stuff and probably confused me even more. I just figured he seems to be doing well but I think he has a lot more resources and guidance than I do. Plus, he's probably worrying more about his own future and assets now that he's retired. And that's a whole different topic too in terms of my parents' assets and their will and how everything is to be split between my brothers and I. My dad really sucks at explaining stuff, and my mom stays out of the investments stuff mostly, so it's always fun when he tries to explain things like this to my brothers and I. Like he'll start off with some really vague description, then talk about how he's not sure and needs to talk to his "guy" at Fidelity or wherever else, and then just tells us to go look the information up on the interwebs and Fidelity's webpage. Ughhhhh.

BTW this is probably one of the most hilarious [but to the point] things I've heard in a long time: "Right now you're like a stumbling drunk with a loaded gun in his hand, and we want to at least get that gun put down in a safe place before you accidentally blow your own nuts off." - If I ever have kids, I'm going to share that with them whenever I feel they're about to do something stupid... well, maybe not if it's a girl hahahahahahahaha


Oh one other question. I'm 33 and my wife is 28. I know there's a lot of talk about how much we're willing to risk and what not, and that there are formulas out there telling you what kind of investments to invest it based on your age. Do you guys think, at our ages, it's OK to go an invest 100% (or close to) in Domestic and/or International stock index funds? And even different ones at that? Or better to start being more 'protective' about what we currently may have? I guess part of this really does come back down to identifying risk and how much we're willing to accept, but how do most people get started with even making that sort of decision?
« Last Edit: November 13, 2014, 04:00:29 PM by jplee3 »

jeromedawg

  • Magnum Stache
  • ******
  • Posts: 2856
  • Location: Orange County, CA
Re: Question on Investments in Roth IRA, 401k, and regular account?
« Reply #13 on: November 14, 2014, 03:44:22 PM »
So I'm planning to recharacterize my Roth IRA contributions for this year as Traditional IRA since it sounds like I should stick with contributing to the Traditional for now.

I just called Fidelity to get some more info on my accounts as well. I forgot about this but it turns out that I was investing in a Roth 401k at my previous company. I contributed about $11k of post-taxed dollars and they did match a little bit, $1500~, which is not taxed. The earnings came out to around $3000-4000 or so.
So the options to move that money are various obviously but it sounds like I should probably move the $11k and the $3-4k earnings (all post-tax according to Fidelity) over to a Roth IRA (BTW: is this even allowed despite the IRA contribution limits?). As far as the $1500 contributed by the former company, which was tax-deferred, what should I do with that though? It's a small amount but I would think I should probably just put it into a rollover account or something. Assuming rollover IRAs or rolling over Roth 401k funds to Roth IRAs aren't subject to contribution limits, it seems this would make the most sense no?