Late start investing

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kvee1967
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Re: Late start investing

Post by kvee1967 »

I would like some feedback on a plan I'm putting together. The 401k for my new job starts Oct 31, but the employer match doesn't start until August 2022. I was only going to contribute enough to get the match but all of the feedback i've gotten convinced me to contribute as much as possible. I've managed to save a cash fund for 4 months of expenses as well as my 6 month emergency fund. I was thinking of doing a 50% contribution for the next 4 months and use the other 50% for my monthly expense fund and my IRA for 2022. Should I follow this plan or do something different?
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ruralavalon
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Fri Oct 15, 2021 10:32 pm I would like some feedback on a plan I'm putting together. The 401k for my new job starts Oct 31, but the employer match doesn't start until August 2022. I was only going to contribute enough to get the match but all of the feedback i've gotten convinced me to contribute as much as possible. I've managed to save a cash fund for 4 months of expenses as well as my 6 month emergency fund. I was thinking of doing a 50% contribution for the next 4 months and use the other 50% for my monthly expense fund and my IRA for 2022. Should I follow this plan or do something different?
I am confused w your question.

How much (in dollars) is that "cash fund for 4 months of expenses"? Do you want to add all of that to your tax-advantaged investing accounts? Or do you want to add some of that to your emergency fund?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
kvee1967
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Re: Late start investing

Post by kvee1967 »

Since I've been gaining more info about 401ks I've decided to contribute enough to get the employer match. I have a traditional IRA and I'm considering opening a Vanguard account with the 2040 target date fund. I would like feedback about this particular fund
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ruralavalon
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Sat Oct 16, 2021 10:50 am Since I've been gaining more info about 401ks I've decided to contribute enough to get the employer match. I have a traditional IRA and I'm considering opening a Vanguard account with the 2040 target date fund. I would like feedback about this particular fund
What will you be using in your new 401k?

Vanguard target date 2040 fund is a good choice for a simple, all-in-one portfolio, it is a very diversified fund with a very low expense ratio.

Using any allocation fund seems to inoculate the investor against behavioral errors and a provide higher investor returns. Morningstar (8/15/2019), "Mind the Gap 2019", link.

It would be a good idea to use target funds in both the Vanguard IRA and your 401k account.

In my opinion T. Rowe Price Retirement 2040 Trust (Class B) ER 0.36%, pdf fact sheet, is a very good choice for a fund to use in your employer's 401k plan. That is a good, simple, all-in-one portfolio, it is a very diversified fund, with a low expense ratio.

Both Vanguard and T.Rowe Price target date funds are highly rated by Morningstar.

Morningstar (3/18/2021), The Best Target-Date Funds for 2021 and Beyond.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
kvee1967
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Re: Late start investing

Post by kvee1967 »

My 401k is managed by T. Rowe Price and the 2040 target date fund has an expense ratio of 0.40%. My traditional IRA is with M1 Finance. It holds the Vanguard total stock market ETF (VTI) 70%, total international ETF (VXUS) 10% and the total bond (BND) 20%. The more I learn about Vanguard has me thinking about contributing just enough for the employer match and opening a taxable account with the Vanguard 2040 target date fund because of the lower fees. I was also thinking of transferring my IRA to Vanguard as well. If I did this what would be good ETFs for my IRA since the target date fund already holds the same funds that are currently in my IRA. What would be your advice?
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ruralavalon
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Sat Oct 16, 2021 7:28 pm My 401k is managed by T. Rowe Price and the 2040 target date fund has an expense ratio of 0.40%. My traditional IRA is with M1 Finance. It holds the Vanguard total stock market ETF (VTI) 70%, total international ETF (VXUS) 10% and the total bond (BND) 20%. The more I learn about Vanguard has me thinking about contributing just enough for the employer match and opening a taxable account with the Vanguard 2040 target date fund because of the lower fees. I was also thinking of transferring my IRA to Vanguard as well. If I did this what would be good ETFs for my IRA since the target date fund already holds the same funds that are currently in my IRA. What would be your advice?
Transferring your IRA to Vanguard and using Vanguard Target Retirement 2040 (VFORX) ER 0.14% is a good idea in my opinion.

It's certainly better to contribute more to the 401k and use T. Rowe Price Retirement 2040 Trust (Class B) ER 0.40% than to contribute to a taxable account.

Wiki article "Prioritizing Investments".

You should not give up the tax deduction (you said 12% tax bracket) and tax-deferred growth in the 401k just because of an expense ratio of 0.40%. That is a pretty low expense ratio. The T. Rowe Price Target Date funds are rated "high" ("gold") by Morningstar.

Morningstar (3/18/2021), The Best Target-Date Funds for 2021 and Beyond.

I see no reason to skip the tax benefits of contributions to the 401k. If you contributed another $10k (beyond whatever you need to get the match) to the 401k that would leave you another $1,200 to either spend or add to your retirement investing each year.

If you work another 12 years to age 66, then that means an additional $14,400 added to retirement investing plus whatever growth you get from that additional investment. In 12 years growth could double that amount to $28,800, just from the benefit of the tax deduction.

You will not get anything even close to that amount of benefit from a lower expense ratio.

The SEC Mutual Fund Cost Calculator.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
kvee1967
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Joined: Thu Aug 12, 2021 6:50 pm

Re: Late start investing

Post by kvee1967 »

I've decided to transfer my IRA to Vanguard. What is your opinion of the 2040 Target date fund
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ruralavalon
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Sun Oct 17, 2021 9:55 pm I've decided to transfer my IRA to Vanguard. What is your opinion of the 2040 Target date fund
It's a very good choice.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
kvee1967
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Re: Late start investing

Post by kvee1967 »

What is the difference between the life strategy fund and the target date? Which one would be better for a late starter with very little retirement savings?
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ruralavalon
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Mon Oct 18, 2021 8:18 am What is the difference between the life strategy fund and the target date? Which one would be better for a late starter with very little retirement savings?
The asset allocation (stock/bond mix) of the target date fund shifts to become more conservative over time.

The asset allocation of LifeStrategy fund is fixed, it stays the same.

Both are good choices. I think a target date fund is a little better "for a late starter with very little retirement savings".
Last edited by ruralavalon on Mon Oct 18, 2021 9:15 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
CurlyDave
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Re: Late start investing

Post by CurlyDave »

kvee1967 wrote: Thu Sep 16, 2021 7:14 pm The company uses T. Rowe Price and the fees are a little high. The fund expense ratios are high as well and that's why I was leaning toward a brokerage account
With your shortened time frame the slightly higher fees in your 401(k) are of lower importance than for those with a longer time frame. What is of primary importance is getting your contributions as high as possible for as long as possible. After retirement you can roll over the 401(k) into an IRA at the brokerage of your choice. So you only have to endure the fees for a limited time. Any plan with automatic deductions from your pay reduces the chances for procedural errors.

I suggest contributing as much as humanly possible to the 401(k) as soon as possible. For my own last 10 years of working I contributed 14% to the company 401 (k) even though the match was only 4% on our first 8% of salary. My total savings rate was 18% which is only medium high for the group on this board. Although I also had taxable savings and was investing in real estate outside of the 401 (k).

On edit: At the age of 59.5 you can withdraw from your 401(k) with no penalty. At that point, or maybe even a few months earlier, I would start moving my emergency fund into the 401(k) by increasing my contributions from salary and spending the current EF for living expenses. This gets pre-tax dollars into the 401(k). Re-think your EF needs in retirement. Your entire portfolio is available to you, and one of the biggest needs for an EF, job loss, is no longer a threat.
Answering a question is easy -- asking the right question is the hard part.
Topic Author
kvee1967
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Re: Late start investing

Post by kvee1967 »

My IRA is with M1 Finance and I was considering transferring to Vanguard. Since I currently hold the 3 fund portfolio would it be wise to change to either the Life strategy or target date for my IRA and use the T Rowe Price equity index 500 (PREIX) for my 401k. Or should I go with the the T Rowe Price 2040 target date and keep my IRA holdings the same.
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ruralavalon
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Re: Late start investing

Post by ruralavalon »

kvee1967 wrote: Mon Oct 18, 2021 12:35 pm My IRA is with M1 Finance and I was considering transferring to Vanguard. Since I currently hold the 3 fund portfolio would it be wise to change to either the Life strategy or target date for my IRA and use the T Rowe Price equity index 500 (PREIX) for my 401k. Or should I go with the the T Rowe Price 2040 target date and keep my IRA holdings the same.
I suggest that you use T Rowe Price 2040 fund in your 401k account and Vanguard Target Retirement 2040 Inv (VFORX) in your IRA.

I think that's best "for a late starter with very little retirement savings".

You will have simple, very diversified, all-in-one funds, for an overall portfolio which requires absolutely no management attention from you. Then all you need to do is focus on keeping your rate of contributions as high as is practical for you.

Allocation funds seem to inoculate the investor against behavioral errors and so produce higher investor returns. Morningstar (8/15/2019), "Mind the Gap, 2019", link.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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