Author Topic: Roth IRA and 401K – Advice?  (Read 2605 times)

And!ru7

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Roth IRA and 401K – Advice?
« on: December 28, 2017, 01:49:38 PM »
Hi,

I was about to invest into the Vanguard Target Retirement 2050 Fund (VFIFX) only to find out that my 401K is invested into Vanguard Institutional Target Retirement 2050 Fund. 

With only 3,000 to open a Roth IRA does anyone have any advice on which funds to purchase?  Picking the Same Target Retirement fund as my 401k doesn’t seem like a good investment strategy.  Thanks

MDM

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Re: Roth IRA and 401K – Advice?
« Reply #1 on: December 28, 2017, 07:52:31 PM »
Picking the Same Target Retirement fund as my 401k doesn’t seem like a good investment strategy.
Why?

And!ru7

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Re: Roth IRA and 401K – Advice?
« Reply #2 on: December 28, 2017, 10:40:02 PM »
Picking the Same Target Retirement fund as my 401k doesn’t seem like a good investment strategy.
Why?

Well, I guess it probably doesn’t matter, since that fund is already so diverse.  But would you try anything different?

Frankies Girl

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Re: Roth IRA and 401K – Advice?
« Reply #3 on: December 28, 2017, 11:11:00 PM »
It is a financial advisor trick to tell people that to properly invest, you need dozens of different funds in all different sectors.

If you want simple, easy, and decent returns, index investing is the way to go. And that means you can actually invest in just a few funds. Or even one like your target fund. It really isn't hard, but understanding how index investing works requires one to read and do some basic research, and most folks are too busy, scared, or worried about making mistakes to do their homework.

I just posted the following in another thread, and I think it might be helpful for you as well since it sounds like you're still at the very early stages of figuring out how all this stuff works. I knew nothing up until a few years ago, and found this forum and then Jim Collins and Bogleheads and this is my roadmap for how I got up to speed:

Read Jim Collins' stock series to get a great understanding of how this stuff fits together. Check out his site or get his book (based on the site). It is absolutely one of the best, easy to understand guides I've ever read.
http://jlcollinsnh.com/stock-series/

Check out Bogleheads site for any possible question you could have regarding index investing.

The following are the steps I took:

1. Wrote up an investment policy statement to figure out my goals and plans. This is my blueprint for what goes where, why I do A or B if this or that happens, where I want to go in the future, and how I'm going to get there.
https://www.bogleheads.org/wiki/Investment_policy_statement

2. Figured out my asset allocation (AA). This is based off of how much risk/volatility I felt comfortable with and set up my portfolio to reflect my AA (which would also include any real estate).
https://www.bogleheads.org/wiki/Asset_allocation

3. I then took a look at what I held where, sold off everything that didn't match up with my goals in my IPS (I decided I was going to be an index investor holding only 2-4 total mutual funds across my entire portfolio, YMMV). I built a lazy portfolio and I am quite pleased with the ease and elegance of it all (but using a target date fund is basically making a lazy portfolio that charges you only a tiny bit more in expense ratio for them to create a rebalancing glidepath). https://www.bogleheads.org/wiki/How_to_build_a_lazy_portfolio


So TL/DR: you're fine holding the target date fund across the board. What you need to be asking yourself is does the funds in the target date fund match up with your chosen asset allocation? If so, then you're good. But do think about checking out the links so you understand how this stuff works. It is such an amazing thing to feel completely confident in your path and future and know what to do when.


« Last Edit: December 28, 2017, 11:13:20 PM by Frankies Girl »

Radagast

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Re: Roth IRA and 401K – Advice?
« Reply #4 on: December 29, 2017, 12:08:09 AM »
Picking the Same Target Retirement fund as my 401k doesn’t seem like a good investment strategy.
Why?

Well, I guess it probably doesn’t matter, since that fund is already so diverse.  But would you try anything different?
Nope. VFIFX all the way. You would spends weeks learning enough to do as well as VFIFX, at best. Better would take months or even years and be a crap shoot. The only place you may want to try something different might be in taxable accounts, if you plan on being in the top half of the future tax rates.

And!ru7

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Re: Roth IRA and 401K – Advice?
« Reply #5 on: December 30, 2017, 11:43:35 AM »
Picking the Same Target Retirement fund as my 401k doesn’t seem like a good investment strategy.
Why?

Well, I guess it probably doesn’t matter, since that fund is already so diverse.  But would you try anything different?
Nope. VFIFX all the way. You would spends weeks learning enough to do as well as VFIFX, at best. Better would take months or even years and be a crap shoot. The only place you may want to try something different might be in taxable accounts, if you plan on being in the top half of the future tax rates.

What do you mean, "if you plan on being the top half of the future tax rates?"

And!ru7

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Re: Roth IRA and 401K – Advice?
« Reply #6 on: December 30, 2017, 11:46:54 AM »
It is a financial advisor trick to tell people that to properly invest, you need dozens of different funds in all different sectors.

If you want simple, easy, and decent returns, index investing is the way to go. And that means you can actually invest in just a few funds. Or even one like your target fund. It really isn't hard, but understanding how index investing works requires one to read and do some basic research, and most folks are too busy, scared, or worried about making mistakes to do their homework.

I just posted the following in another thread, and I think it might be helpful for you as well since it sounds like you're still at the very early stages of figuring out how all this stuff works. I knew nothing up until a few years ago, and found this forum and then Jim Collins and Bogleheads and this is my roadmap for how I got up to speed:

Read Jim Collins' stock series to get a great understanding of how this stuff fits together. Check out his site or get his book (based on the site). It is absolutely one of the best, easy to understand guides I've ever read.
http://jlcollinsnh.com/stock-series/

Check out Bogleheads site for any possible question you could have regarding index investing.

The following are the steps I took:

1. Wrote up an investment policy statement to figure out my goals and plans. This is my blueprint for what goes where, why I do A or B if this or that happens, where I want to go in the future, and how I'm going to get there.
https://www.bogleheads.org/wiki/Investment_policy_statement

2. Figured out my asset allocation (AA). This is based off of how much risk/volatility I felt comfortable with and set up my portfolio to reflect my AA (which would also include any real estate).
https://www.bogleheads.org/wiki/Asset_allocation

3. I then took a look at what I held where, sold off everything that didn't match up with my goals in my IPS (I decided I was going to be an index investor holding only 2-4 total mutual funds across my entire portfolio, YMMV). I built a lazy portfolio and I am quite pleased with the ease and elegance of it all (but using a target date fund is basically making a lazy portfolio that charges you only a tiny bit more in expense ratio for them to create a rebalancing glidepath). https://www.bogleheads.org/wiki/How_to_build_a_lazy_portfolio


So TL/DR: you're fine holding the target date fund across the board. What you need to be asking yourself is does the funds in the target date fund match up with your chosen asset allocation? If so, then you're good. But do think about checking out the links so you understand how this stuff works. It is such an amazing thing to feel completely confident in your path and future and know what to do when.

Thanks for the great advice and resources! By the way, what does YMMV stand for?

Radagast

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Re: Roth IRA and 401K – Advice?
« Reply #7 on: December 30, 2017, 06:57:22 PM »
Picking the Same Target Retirement fund as my 401k doesn’t seem like a good investment strategy.
Why?

Well, I guess it probably doesn’t matter, since that fund is already so diverse.  But would you try anything different?
Nope. VFIFX all the way. You would spends weeks learning enough to do as well as VFIFX, at best. Better would take months or even years and be a crap shoot. The only place you may want to try something different might be in taxable accounts, if you plan on being in the top half of the future tax rates.

What do you mean, "if you plan on being the top half of the future tax rates?"
If your tax rate will be roughly 25% or less, you may as well use the 2050 target date fund in all accounts. 25% or higher and you should be looking at tax efficiency as a primary consideration. It is very inexact, and changing next year anyhow.

sparkytheop

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Re: Roth IRA and 401K – Advice?
« Reply #8 on: December 31, 2017, 06:58:35 PM »




Thanks for the great advice and resources! By the way, what does YMMV stand for?

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