Where Do I Go From Here - Asset Location [2022 Update]

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AnnetteLouisan
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Where Do I Go From Here - Asset Location [2022 Update]

Post by AnnetteLouisan »

[Feb 01, 2022 update is here: Annette’s 1/31/2022 Numbers

January 11, 2022 update is here:Re: Where Do I Go From Here - 2022 Update- Updated as of 11-6 to include asset location issues.

April 10, 2022 update is here: XLP ETF - Defensive Consumer Cyclical ETF --admin LadyGeek]


-proposed 401k reallocation and IRA investments
- draft IPS - feedback welcome on my IPS or anything - see last page of this thread
- did backdoor Roth IRA conversion;
- considering Schwab for taxable brokerage;
- educating myself w the wiki etc - TLH, etc.
- estimated pension (32k)
- estimated ss (39k)
- got rid of extra life insurance
- considering changing 401k future allocations to:
10 percent ex US,
25 percent S&P and
15 percent of a much lower ER bond index
50 percent stable value

Current AA 10/90, goal is 25/75.

—————
Original post:


I’m new to this forum, so please bear with me if I inadvertently break any rules. First of all, these are the best emojis I’ve ever seen, so clearly I’m in the presence of greatness here, no surprise.

Here’s the situation: Grew up (relatively) poor, risk averse (parents divorced and one of my first jobs was for a major brokerage that failed spectacularly), put nose to grindstone, made mistakes, just coming up for air now and realize I need to learn more asap. Total NW $1.8, age 54, no debt, employed FT at $230k (290k if you count bonuses, matching, interest and 401k earnings). Spend 45k a year (38k during covid), plus 76K in all annual taxes. Just opened an IRA; no taxable brokerage (planning to open one this year with Fidelity or Schwab). Max out my 401k and catch-up contribution. Have an emergency fund. NYC resident, 35 percent fedl bracket, plus 14 percent state and local income tax, filing status: single, no dependents.

Expect to postpone collecting my small COLA’d defined benefit pension (around $32kyr if I retire at 57, $39k at 59) until age 62 to avoid the haircut. Well insured: LTCi, 70 percent LTD, medical, dental, vision and term life. Expect to take SS at 67. Per ssa estimator, if I started to collect ss at 62 I would receive approx $26,748, 67: $39,444, at 70, $49,044.

Expect a moderate sized inheritance but have always heeded the warning not to rely on it (all the more so lately). I expect retirement expenses to be between 45k-75k over time, plus taxes. Will not impulsively sell in a downturn.

TSP:
$215,000 G Fund (treasuries) ER 0.049 percent
$63,000 C Fund (S&p index) ER 0.049
$5,000 S Fund (small to mid cap US index) ER 0.049
$6.5k I Fund (high quality international index) ER 0.049

401k:
$45,000 State Street S&P 500 Index ER 0.01 percent
$110,000 Baird Core Plus Bond Institutional Fund ER 0.30
$85,000 TRowe Stable Value Common Trust Fund ER 0.15

Banks: $643,000
Series I Bond: $10,000
backdoor Roth 401k with Fidelity: $7,000 - new!

Total investable assets: $1,213,000 as of 8/31/21

Co-op: $600,000 no mortgage, but $1200 monthly maintenance, considering selling.

Goals:
$2.2 mil net worth at age 57 (in 3 years)
increase AA equity percentage to approx 25 percent
a tax efficient withdrawal plan for retirement
sufficient retirement income with acceptable volatility

Questions:
1. Does a muni bond fund make sense for me and if so which one?
(consensus answer:no)
2. Baird Fund has an ER of 0.30 - should I get out for that reason or another reason? (consensus answer: yes, the ER is too high and I’m too bond heavy)
3. Since my 401k is with TRowe do I open a taxable brokerage with them for the sake of simplicity or go with Schwab/Fidelity or Vanguard? (consensus answer: Fidelity or Schwab)
4. Planning to buy another $10k in I bonds in January: smart? stupid? (smart)
5. One of my bank accounts is a federal savings bank in another state, with no NY branches. In the event I pass, will heirs have to go through an ancillary estate proceeding in that other state to access the funds (they are on the account as a beneficiary). BSteiner says no, case closed.
6. I know my AA is not going to work long term. How do I diversify and best protect myself from market losses, self dealing, fund consolidation, fraud? (increase equity percentage in line with risk tolerance for at least some long term growth) Concretely, besides the Baird, should I sell the Stable Value and go with State Street ExUS at ER 0.02 and increase the S&P allocation?
7. Is my next step doing a backdoor Roth (no megabackdoor at my employer), an HSA or a taxable brokerage? Assuming its a taxable brokerage, which firm and which account type, and which investments- VTI? Other? (consensus: do all three)
8. How to deal with inheriting residential real estate possibly.
9. Should my plan just be to work as long as possible given my income - it’s a bit rich to toss $290/year just to have endless free time at an age where I wouldn’t really enjoy it anyway.
10. Any other comments that occur to you. All welcome. I know that my AA is too conservative. I’m very afraid of losses. But I also see that inflation is going to destroy my nest egg.

Bonus question:

My future allocation in my 401k is all stable value right now and my AA is 10/90. Pursuing my new AA of 25/75, I may change my future allocation to: 50 percent stable value, 10 percent State Street Gl All Cp Ex US Ind, 25 percent State Street S & P Index and 15 percent State Street US Bond Index (ERs all under 0.03). I realize this is not enough - but it seems like a start for the timid.
How should I move $ in my TSP?

I don’t have anyone to ask except forums, unfortunately. Reddit says invest in VTI and VTSAX...

—Annette
(a Pseudonym: the real Annett Louisan is basically the German version of the singer Enya, none of which has a thing to do with me except I like her music)
Last edited by AnnetteLouisan on Sat Nov 06, 2021 10:23 am, edited 82 times in total.
placeholder
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Re: Where Do I Go From Here

Post by placeholder »

How much are you currently contributing to the tsp?
ShowMeTheER
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Re: Where Do I Go From Here

Post by ShowMeTheER »

Great expense control. You are racking up the cash with a good job.

Start a taxable account if you are comfortable, investing in equity index fund(s).

Ride your current situation for another 5 years (or more) and retire in style.
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Re: Where Do I Go From Here

Post by 4nursebee »

AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm I’m new to this forum, so please bear with me if I inadvertently break any rules. First of all, these are the best emojis I’ve ever seen, so clearly I’m in the presence of greatness here, no surprise.

Here’s the situation: Grew up poor, risk averse, put nose to grindstone, made mistakes, just coming up for air now and realize I need to learn more asap. Total NW $1.8, age 54, employed FT at 230,000. (290 if you count bonuses, matching, interest and 401k earnings). Spend 45k a year (38 during covid). Have no IRA or taxable brokerage.

TSP:
$215,000 G Fund
$63,000 C Fund
$5,000 S Fund
$6.5k I Fund

401k:
$45,000 State Street S&P 500 Index
$110,000 Baird Core Plus Bond Institutional Fund
$85,000 TRowe Stable Value Common Trust Fund

Banks: $650,000
Series I Bond: $10,000

Co-op: $600,000 no mortgage

I don’t have anyone to ask except forums, unfortunately. Reddit says invest in VTI and VTSAX...
Where do you want to go from here?
What are your goals?
Pale Blue Dot
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Re: Where Do I Go From Here

Post by Zeno »

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gcb65
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Re: Where Do I Go From Here

Post by gcb65 »

Your asset allocation is extremely risk adverse.
Buying additional I-Bonds each year make sense considering your cash level.
I would recommend opening an after-tax brokerage account and at least start investing some each month into an index equity fund like VTI.
I don't think it wise for someone that has been so risk adverse their entire life to drastically shift asset allocation all at one time.
You have some in the 401K in the S&P 500. I don't know how you are dividing your current contribution into the 401K but considering put more into the S&P 500 fund.

Some questions to ask yourself. How do you feel when the value of a fund go down 20, 30% of more? Have you ever sold equity when the market dropped? Would you do it again?
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

4nursebee wrote: Sun Sep 19, 2021 4:44 am
AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm I’m new to this forum, so please bear with me if I inadvertently break any rules. First of all, these are the best emojis I’ve ever seen, so clearly I’m in the presence of greatness here, no surprise.

Here’s the situation: Grew up poor, risk averse, put nose to grindstone, made mistakes, just coming up for air now and realize I need to learn more asap. Total NW $1.8, age 54, employed FT at 230,000. (290 if you count bonuses, matching, interest and 401k earnings). Spend 45k a year (38 during covid). Have no IRA or taxable brokerage.

TSP:
$215,000 G Fund
$63,000 C Fund
$5,000 S Fund
$6.5k I Fund

401k:
$45,000 State Street S&P 500 Index
$110,000 Baird Core Plus Bond Institutional Fund
$85,000 TRowe Stable Value Common Trust Fund

Banks: $650,000
Series I Bond: $10,000

Co-op: $600,000 no mortgage

I don’t have anyone to ask except forums, unfortunately. Reddit says invest in VTI and VTSAX...
Where do you want to go from here?
What are your goals?
My goal was $2.2 million NW and retiring around age 58. Recently I heard I need closer to 3.2, or around 72 times annual spend.

I want to protect what I have from too much volatility, transition as smoothly as possible into retirement, protect myself from frivolous lawsuits, maximize tax breaks, keep it as simple as possible and not suffer shocks in older age. I would also like to potentially live a little more comfortably.
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AnnetteLouisan
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

gcb65 wrote: Sun Sep 19, 2021 6:10 am Your asset allocation is extremely risk adverse.
Buying additional I-Bonds each year make sense considering your cash level.
I would recommend opening an after-tax brokerage account and at least start investing some each month into an index equity fund like VTI.
I don't think it wise for someone that has been so risk adverse their entire life to drastically shift asset allocation all at one time.
You have some in the 401K in the S&P 500. I don't know how you are dividing your current contribution into the 401K but considering put more into the S&P 500 fund.

Some questions to ask yourself. How do you feel when the value of a fund go down 20, 30% of more? Have you ever sold equity when the market dropped? Would you do it again?
I’ve never sold when the market dropped. I’ve stopped contributions to funds that had negative annual returns. I want to protect myself from the coming market correction given my age. I kept my equity allocation to an amount where I wouldn’t be too upset if a 30& percent drop occurred but Id still get some equity upside. In the case of a bond rout or treasury downgrade or default Id be in the soup.
Last edited by AnnetteLouisan on Sun Sep 19, 2021 8:05 am, edited 1 time in total.
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Re: Where Do I Go From Here

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Re: Where Do I Go From Here

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aristotelian
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Re: Where Do I Go From Here

Post by aristotelian »

There is nothing preventing you from doing backdoor Roth as long as that is allowed. It appear overall your allocation is something like 10% stocks. Your stock allocation is so low you are actually at great risk of losing money to inflation. If you go down this path, you should probably assume your portfolio is going to earn zero real return and basically save enough to cover your future expenses dollar for dollar. That said it appear SS can cover most of your expenses so you should be OK if you work a few more years.
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Re: Where Do I Go From Here

Post by GMCZ71 »

AnnetteLouisan wrote: Sun Sep 19, 2021 6:29 am
gcb65 wrote: Sun Sep 19, 2021 6:10 am Your asset allocation is extremely risk adverse.
How do you feel when the value of a fund go down 20, 30% of more? Have you ever sold equity when the market dropped? Would you do it again?
I’ve never sold when the market dropped. I’ve stopped contributions to funds that had negative annual returns. I want to protect myself from the coming market correction given my age.
A market correction can be something good. Think of your 72 times annual spend in a linear way..

Years 1-15 or more years (each person is diff) needs to be cash, bonds, cds etc.
Years x-72 needs to be stocks.
With the market correction you move more years to stocks at a lower price.
If the market is high and frothy move some years back into cash, bonds.

This is asset allocation and once you get the hang of it you only need make changes in your holdings a couple times or zero per year.
John | * Friends and family and money | * What you recommend will have periods of underperformance. You will be blamed. | * You avoid the suspicion of "self-serving." by Taylor Larimore
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AnnetteLouisan
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

ShowMeTheER wrote: Sun Sep 19, 2021 1:23 am Great expense control. You are racking up the cash with a good job.

Start a taxable account if you are comfortable, investing in equity index fund(s).

Ride your current situation for another 5 years (or more) and retire in style.
Thank you! I’ve a black belt in expense control, lol. But a lot of it is due to having no dependents and very self sufficient kinfolk.
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Re: Where Do I Go From Here

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gcb65
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Re: Where Do I Go From Here

Post by gcb65 »

AnnetteLouisan wrote: Sun Sep 19, 2021 6:29 am I’ve never sold when the market dropped. I’ve stopped contributions to funds that had negative annual returns. I want to protect myself from the coming market correction given my age. I kept my equity allocation to an amount where I wouldn’t be too upset if a 30& percent drop occurred but Id still get some equity upside. In the case of a bond rout or treasury downgrade or default Id be in the soup.
Well, it good that you have not sold in a down market. But stopping contributions when the market is down the second worse thing to do when investing in equities. The good news is that your expenses are very low and you are making good money now so you don't need to put a lot of money at risk. Your TSB is about 25/75 stock to bond ratio and you 401K is 20/80 stock to bond ratio. This is very conservative considering you have 600k in the bank. If your 401k has a target date fund or a balanced fund that is another way for you to boost equities with a more muted decline when the markets correct. In theory buying individual equity and bond index funds is better expense wise but it does not help with your risk aversion. For you the pain of loosing money is far greater then the joy of gaining money. At least you recognize your risk tolerance is very low and are allocated in a way that matches your risk tolerance. You might need to work a little longer but you are well on your way of accumulating enough assets with social security and perhaps you have a government pension too to meet your needs in retirement.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

placeholder wrote: Sun Sep 19, 2021 1:01 am How much are you currently contributing to the tsp?
I updated my OP to reflect that I contribute the max to my 401k and max out my catch up contributions, for a total of $26,000 and I receive slightly over $21,000 in matching dollars.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

ShowMeTheER wrote: Sun Sep 19, 2021 1:23 am Great expense control. You are racking up the cash with a good job.

Start a taxable account if you are comfortable, investing in equity index fund(s).

Ride your current situation for another 5 years (or more) and retire in style.
Trying to decide among Vanguard, Fidelity and Schwab. Just read on this board that Schwab just increased its fees to invest in Vanguard funds to $75!
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

ShowMeTheER wrote: Sun Sep 19, 2021 1:23 am Great expense control. You are racking up the cash with a good job.

Start a taxable account if you are comfortable, investing in equity index fund(s).

Ride your current situation for another 5 years (or more) and retire in style.
Thank you - learned the hard way, I’m afraid, to control costs.
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Re: Where Do I Go From Here

Post by Fallible »

AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm ...
I know that my AA is too conservative. I’m very afraid of losses. . ...
Welcome to the forum and congratulations for doing so well financially! You've also listed your goals and that's in line with the Bogleheads' philosophy, principle No. 1:

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

These principles are very much a guide to handling investing risk. Considering your references to risk aversion and finding an asset allocation based on the amount of risk you can and want to handle - what is right for you - I would suggest checking out the BH wiki, including "Asset allocation," "Risk tolerance," and in books and blogs on the reading list recommendations. Also, the "Asset allocation" page includes links to BH pro Larry Swedroe's series, "Ability, Willingness (risk tolerance), and Need to Take Risk. Here are the links:

https://www.bogleheads.org/wiki/Asset_allocation

https://www.bogleheads.org/wiki/Risk_tolerance

https://www.cbsnews.com/news/asset-allo ... -you-take/

https://www.cbsnews.com/news/asset-allo ... tolerance/

https://www.cbsnews.com/news/asset-allo ... -you-need/

https://www.cbsnews.com/news/asset-allo ... ing-goals/

https://www.bogleheads.org/wiki/Books:_ ... nd_reviews

A good AA book I would suggest is All About Asset Allocation, 2nd ed., by BH pro Rick Ferri.

My own experience choosing an AA is that an important part is realizing that even the best AA may not exclude self-doubts during market volatility or a market crash. The key is not the doubting or questioning, but whether the amount of risk you've chosen leads to selling or to lowering investments, to an unwise change of course.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: Where Do I Go From Here

Post by SchruteB&B »

AnnetteLouisan wrote: Sun Sep 19, 2021 11:35 am
ShowMeTheER wrote: Sun Sep 19, 2021 1:23 am Great expense control. You are racking up the cash with a good job.

Start a taxable account if you are comfortable, investing in equity index fund(s).

Ride your current situation for another 5 years (or more) and retire in style.
Trying to decide among Vanguard, Fidelity and Schwab. Just read on this board that Schwab just increased its fees to invest in Vanguard funds to $75!
I have read that there are waivers for those fees, but also want to point out that Schwab also offers low cost index funds, so nothing wrong with investing in those!
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Re: Where Do I Go From Here

Post by 4nursebee »

AnnetteLouisan wrote: Sun Sep 19, 2021 6:14 am
4nursebee wrote: Sun Sep 19, 2021 4:44 am
AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm I’m new to this forum, so please bear with me if I inadvertently break any rules. First of all, these are the best emojis I’ve ever seen, so clearly I’m in the presence of greatness here, no surprise.

Here’s the situation: Grew up poor, risk averse, put nose to grindstone, made mistakes, just coming up for air now and realize I need to learn more asap. Total NW $1.8, age 54, employed FT at 230,000. (290 if you count bonuses, matching, interest and 401k earnings). Spend 45k a year (38 during covid). Have no IRA or taxable brokerage.

TSP:
$215,000 G Fund
$63,000 C Fund
$5,000 S Fund
$6.5k I Fund

401k:
$45,000 State Street S&P 500 Index
$110,000 Baird Core Plus Bond Institutional Fund
$85,000 TRowe Stable Value Common Trust Fund

Banks: $650,000
Series I Bond: $10,000

Co-op: $600,000 no mortgage

I don’t have anyone to ask except forums, unfortunately. Reddit says invest in VTI and VTSAX...
Where do you want to go from here?
What are your goals?
My goal was $2.2 million NW and retiring around age 58. Recently I heard I need closer to 3.2, or around 72 times annual spend.

I want to protect what I have from too much volatility, transition as smoothly as possible into retirement, protect myself from frivolous lawsuits, maximize tax breaks, keep it as simple as possible and not suffer shocks in older age. I would also like to potentially live a little more comfortably.
If your goal is to protect from volatility, I'd say you have done well having lots of cash, bonds.
I think 20-30 x annual spend is enough.
I can't tell you where you want to go, you get to decide that.
In other words, you have already arrived at where you want to be.
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Re: Where Do I Go From Here

Post by Duckie »

AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm Co-op: $600,000 no mortgage, but $1200 monthly maintenance, considering selling.
Why sell? Where would you move to?
Is my next step doing a backdoor Roth (no megabackdoor at my employer), an HSA or a taxable brokerage?
All three.
  1. If your employer offers an HSA use it.
  2. Open a Roth IRA and contribute (via backdoor). Once you turn age 59.5 and have held the account for five years all withdrawals are tax and penalty free. When you retire you might not have much in there at first, unless you do periodic conversions, but just having the account gives you options.
  3. Any extra monies go to taxable.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

Duckie wrote: Sun Sep 19, 2021 5:00 pm
AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm Co-op: $600,000 no mortgage, but $1200 monthly maintenance, considering selling.
Why sell? Where would you move to?
Is my next step doing a backdoor Roth (no megabackdoor at my employer), an HSA or a taxable brokerage?
All three.
  1. If your employer offers an HSA use it.
  2. Open a Roth IRA and contribute (via backdoor). Once you turn age 59.5 and have held the account for five years all withdrawals are tax and penalty free. When you retire you might not have much in there at first, unless you do periodic conversions, but just having the account gives you options.
  3. Any extra monies go to taxable.
Recently both NYC and my apartment became significantly less liveable. I’m thinking of selling or renting it out and moving to Eastern Long Island or southern Connecticut if I get a permanent WFH option at job.

My employer offers an HSA and HDHP. I’ll give it a whirl this year. Can I do the backdoor Roth with my bank (like an IRA CD) or my 401k provider (TRowe) or does it have to be through a brokerage? I don’t have one yet. Thank you!
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Re: Where Do I Go From Here

Post by Duckie »

AnnetteLouisan wrote: Sun Sep 19, 2021 5:07 pm Can I do the backdoor Roth with my bank (like an IRA CD) or my 401k provider (TRowe) or does it have to be through a brokerage?
You can open a TIRA and Roth IRA at a bank but I don't recommend that. Their options are usually expensive and you don't want a cash CD in your Roth account anyway. In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds/cash) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free.

You're better off at a major brokerage. TRowePrice doesn't have the best options so I wouldn't use them for a personal IRA. Fidelity, Vanguard, and Schwab all have a line-up of low-cost index funds and have no transaction fees for ETFs. They are what we generally recommend. They would also be suitable for a taxable account.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

Duckie wrote: Sun Sep 19, 2021 5:29 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 5:07 pm Can I do the backdoor Roth with my bank (like an IRA CD) or my 401k provider (TRowe) or does it have to be through a brokerage?
You can open a TIRA and Roth IRA at a bank but I don't recommend that. Their options are usually expensive and you don't want a cash CD in your Roth account anyway. In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds/cash) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free.

You're better off at a major brokerage. TRowePrice doesn't have the best options so I wouldn't use them for a personal IRA. Fidelity, Vanguard, and Schwab all have a line-up of low-cost index funds and have no transaction fees for ETFs. They are what we generally recommend. They would also be suitable for a taxable account.
Great, thank you!
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

aristotelian wrote: Sun Sep 19, 2021 7:18 am There is nothing preventing you from doing backdoor Roth as long as that is allowed. It appear overall your allocation is something like 10% stocks. Your stock allocation is so low you are actually at great risk of losing money to inflation. If you go down this path, you should probably assume your portfolio is going to earn zero real return and basically save enough to cover your future expenses dollar for dollar. That said it appear SS can cover most of your expenses so you should be OK if you work a few more years.
When you say “as long as that is allowed” do you mean unless the law changes or as long as I have earned income to contribute. Are there proposals to change the law? If I were to lose my job before contributing for five years, the gains from the backdoor Roth would be taxable, right, as ordinary income, defeating the purpose?

I agree- since I started investing and bought real estate so late in life I didn’t get the advantages (or go through the stock and RE crashes).
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Re: Where Do I Go From Here

Post by aristotelian »

AnnetteLouisan wrote: Sun Sep 19, 2021 5:55 pm
aristotelian wrote: Sun Sep 19, 2021 7:18 am There is nothing preventing you from doing backdoor Roth as long as that is allowed. It appear overall your allocation is something like 10% stocks. Your stock allocation is so low you are actually at great risk of losing money to inflation. If you go down this path, you should probably assume your portfolio is going to earn zero real return and basically save enough to cover your future expenses dollar for dollar. That said it appear SS can cover most of your expenses so you should be OK if you work a few more years.
When you say “as long as that is allowed” do you mean unless the law changes or as long as I have earned income to contribute. Are there proposals to change the law? If I were to lose my job before contributing for five years, the gains from the backdoor Roth would be taxable, right, as ordinary income, defeating the purpose?

I agree- since I started investing and bought real estate so late in life I didn’t get the advantages (or go through the stock and RE crashes).
The gains would only be taxable if withdrawn before 59.5. We are not allowed to discuss pending legislation on this board but you can do a search for the House retirement plan bill.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

aristotelian wrote: Sun Sep 19, 2021 6:19 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 5:55 pm
aristotelian wrote: Sun Sep 19, 2021 7:18 am There is nothing preventing you from doing backdoor Roth as long as that is allowed. It appear overall your allocation is something like 10% stocks. Your stock allocation is so low you are actually at great risk of losing money to inflation. If you go down this path, you should probably assume your portfolio is going to earn zero real return and basically save enough to cover your future expenses dollar for dollar. That said it appear SS can cover most of your expenses so you should be OK if you work a few more years.
When you say “as long as that is allowed” do you mean unless the law changes or as long as I have earned income to contribute. Are there proposals to change the law? If I were to lose my job before contributing for five years, the gains from the backdoor Roth would be taxable, right, as ordinary income, defeating the purpose?

I agree- since I started investing and bought real estate so late in life I didn’t get the advantages (or go through the stock and RE crashes).
The gains would only be taxable if withdrawn before 59.5. We are not allowed to discuss pending legislation on this board but you can do a search for the House retirement plan bill.
Thank you! That is very helpful. I updated my OP with detail about why I’ve been so risk averse.
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Re: Where Do I Go From Here

Post by tj »

AnnetteLouisan wrote: Sun Sep 19, 2021 5:55 pm
aristotelian wrote: Sun Sep 19, 2021 7:18 am There is nothing preventing you from doing backdoor Roth as long as that is allowed. It appear overall your allocation is something like 10% stocks. Your stock allocation is so low you are actually at great risk of losing money to inflation. If you go down this path, you should probably assume your portfolio is going to earn zero real return and basically save enough to cover your future expenses dollar for dollar. That said it appear SS can cover most of your expenses so you should be OK if you work a few more years.
When you say “as long as that is allowed” do you mean unless the law changes or as long as I have earned income to contribute. Are there proposals to change the law? If I were to lose my job before contributing for five years, the gains from the backdoor Roth would be taxable, right, as ordinary income, defeating the purpose?

I agree- since I started investing and bought real estate so late in life I didn’t get the advantages (or go through the stock and RE crashes).
If you don't have earned income, you can't contribute to an IRA, period.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

tj wrote: Sun Sep 19, 2021 6:35 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 5:55 pm
aristotelian wrote: Sun Sep 19, 2021 7:18 am There is nothing preventing you from doing backdoor Roth as long as that is allowed. It appear overall your allocation is something like 10% stocks. Your stock allocation is so low you are actually at great risk of losing money to inflation. If you go down this path, you should probably assume your portfolio is going to earn zero real return and basically save enough to cover your future expenses dollar for dollar. That said it appear SS can cover most of your expenses so you should be OK if you work a few more years.
When you say “as long as that is allowed” do you mean unless the law changes or as long as I have earned income to contribute. Are there proposals to change the law? If I were to lose my job before contributing for five years, the gains from the backdoor Roth would be taxable, right, as ordinary income, defeating the purpose?

I agree- since I started investing and bought real estate so late in life I didn’t get the advantages (or go through the stock and RE crashes).
If you don't have earned income, you can't contribute to an IRA, period.
Right, so I have a job now so I’ll open an IRA and convert in year 1. If I lose my job in Year 3, I can’t contribute but as long as I hold the account for five years I can withdraw w tax free gains at 59.5 - right?
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Re: Where Do I Go From Here

Post by placeholder »

AnnetteLouisan wrote: Sun Sep 19, 2021 5:55 pm When you say “as long as that is allowed” do you mean unless the law changes or as long as I have earned income to contribute. Are there proposals to change the law?
Forum rules prohibit discussing future legislation.
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Re: Where Do I Go From Here

Post by BogleFan510 »

Since you are very risk adverse, I personally do not see a problem with your asset allocation, other than it will likely perform in a relatively narrow range of returns that are on average lower than more stock heavy portfolios. Others may comment in detail, but if you sincerely fear mistakes when experiencing stock market losses, an 80% fixed income portfolio seems a fine choice. Others can comment on which bond funds are most efficient, but your choices, while not the best, do not appear bad either. Over time as you research, you can shift pre tax fund choices to a better fund, without tax issues. I wouldn't make a setvof sudden changes, but rather read the wiki and links, occasionally update posts like yours on this site. This site offers the best investment advice in the world wide web, bar none.

I do not agree that inflation will destroy your nest egg. You will likely preserve your purchasing power, while not growing it all that quickly, but that is likely ok given your spending habits. A relative had a very bond heavy set of investments she left to heirs which exceeded 7 figures, mostly from investing SS checks while she grew her own food and paid taxes, her paid off home was hand built by her husband and herself. People who fear running out of money usually adapt well to changing circumstances so you should be comfortable being conservative.
Last edited by BogleFan510 on Mon Sep 20, 2021 5:11 pm, edited 5 times in total.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

placeholder wrote: Sun Sep 19, 2021 6:41 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 5:55 pm When you say “as long as that is allowed” do you mean unless the law changes or as long as I have earned income to contribute. Are there proposals to change the law?
Forum rules prohibit discussing future legislation.
Duly noted, thank you. Forgive me, I’m new (joined today!!)
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Re: Where Do I Go From Here

Post by BogleFan510 »

AnnetteLouisan wrote: Sun Sep 19, 2021 11:35 am
ShowMeTheER wrote: Sun Sep 19, 2021 1:23 am Great expense control. You are racking up the cash with a good job.

Start a taxable account if you are comfortable, investing in equity index fund(s).

Ride your current situation for another 5 years (or more) and retire in style.
Trying to decide among Vanguard, Fidelity and Schwab. Just read on this board that Schwab just increased its fees to invest in Vanguard funds to $75!
Can get that waived at her asset level or buy ETFs like VTI, fee free. If she transfers asset in kind, they can stay and dividends can be reinvested without charge, so not really an issue. The fee is really more of a signal to Vanguard about record keeping costs. But I buy VG ETFs and a similar schwab funds with any odd cash amounts that are under a VG ETF share price.

Schwab's bank is great, offering fee free ATMs anywhere, including overseas,
Last edited by BogleFan510 on Sun Sep 19, 2021 6:59 pm, edited 1 time in total.
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Re: Where Do I Go From Here

Post by placeholder »

AnnetteLouisan wrote: Sun Sep 19, 2021 6:47 pm Duly noted, thank you. Forgive me, I’m new (joined today!!)
It was not an admonishment just information because you don't want your posts edited or deleted.
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Re: Where Do I Go From Here

Post by Zardoz »

AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm Total NW $1.8, age 54, no debt, employed FT at 230,000. (290 if you count bonuses, matching, interest and 401k earnings). Spend 45k a year (38 during covid). But an additional 72K in taxes. Have no IRA or taxable brokerage. Max out my 401k and catch-up contribution. Have an emergency fund. NYC resident, 35 percent fedl bracket, filing status: single, no dependents. Expect small COLA’d defined benefit pension (25-30k/yr). Well insured: LTC, LTD, medical, term life. Expect to receive SS (around 35k). Expect a decent sized inheritance but have always heeded the warning not to rely on it (all the more so lately). I expect retirement expenses to be between 45k-75k over time, plus taxes.
Great work getting to this point. Bogleheads can try to give you some hints to help you decide how much you need to retire, but there is huge range of opinion on this question, because it addition to the basic math, the answer depends on many personal preferences and probability calculations. There are some people here who would very confidently retire tomorrow in your situation and others who would want to work 10 more years.

If you don't mind working longer and you don't mind leaving a big inheritance, then you can probably get by with some very superficial knowledge of this subject, but if you are interested in whether you can afford to retire early, or how to confidently increase your rate of spending without taking too much risk, you'll need to really educate yourself. I recommend the new book "Retirement Planning Guidebook" by Wade Pfau.
Withdrawal Phase Plan: Equities <= 50% | TIPS, I Bonds | VPW Worksheet | TPAW | Social Security @70
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

Zardoz wrote: Sun Sep 19, 2021 7:21 pm
AnnetteLouisan wrote: Sat Sep 18, 2021 10:37 pm Total NW $1.8, age 54, no debt, employed FT at 230,000. (290 if you count bonuses, matching, interest and 401k earnings). Spend 45k a year (38 during covid). But an additional 72K in taxes. Have no IRA or taxable brokerage. Max out my 401k and catch-up contribution. Have an emergency fund. NYC resident, 35 percent fedl bracket, filing status: single, no dependents. Expect small COLA’d defined benefit pension (25-30k/yr). Well insured: LTC, LTD, medical, term life. Expect to receive SS (around 35k). Expect a decent sized inheritance but have always heeded the warning not to rely on it (all the more so lately). I expect retirement expenses to be between 45k-75k over time, plus taxes.
Great work getting to this point. Bogleheads can try to give you some hints to help you decide how much you need to retire, but there is huge range of opinion on this question, because it addition to the basic math, the answer depends on many personal preferences and probability calculations. There are some people here who would very confidently retire tomorrow in your situation and others who would want to work 10 more years.

f you don't mind working longer and you don't mind leaving a big inheritance, then you can probably get by with some very superficial knowledge of this subject, but if you are interested in whether you can afford to retire early, or how to confidently increase your rate of spending without taking too much risk, you'll need to really educate yourself. I recommend the new book "Retirement Planning Guidebook" by Wade Pfau.
Thank you for the congrats! First million’s the hardest, they say, right? I would definitely not be confident retiring tomorrow because I live in a VHCOL area with ultra high and increasing taxes in an inflationary environment, and half my portfolio hasnt been taxed yet.

It’s mostly that having 650 in banks earning nothing in an inflationary climate is starting to wear on me. Plus my brother’s in stocks and can’t believe I would knowingly leave so much on the table for effectively no reason. I just want to do what is necessary to be a good steward of my life’s savings, which took enormous effort to earn. I’ll check out the books and the links above. Thank you.
Last edited by AnnetteLouisan on Sun Sep 19, 2021 8:22 pm, edited 1 time in total.
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Re: Where Do I Go From Here

Post by KlangFool »

AnnetteLouisan wrote: Sun Sep 19, 2021 6:14 am
My goal was $2.2 million NW and retiring around age 58. Recently I heard I need closer to 3.2, or around 72 times annual spend.
AnnetteLouisan,

It is pointless to use net worth. The 600K in co-op does not pay you any money/income. Use your portfolio size excluding the co-op for your planning.

What is your actual portfolio size?

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Re: Where Do I Go From Here

Post by Wiggums »

I retired at 56 and I became more conservative with our portfolio. Having said that, we still buy into an index fund because we have a long time in retirement. I can see holding cash for Roth conversions, a few years of annual expenditures, etc. beyond that, the money would serve you better by being in the market. My mother is 92 and she is in the Wellesley fund. Having 30% equities should beat inflation and is quite conservative. I would encourage you to invest some of your cash.
"I started with nothing and I still have most of it left."
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

KlangFool wrote: Sun Sep 19, 2021 7:31 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 6:14 am
My goal was $2.2 million NW and retiring around age 58. Recently I heard I need closer to 3.2, or around 72 times annual spend.
AnnetteLouisan,

It is pointless to use net worth. The 600K in co-op does not pay you any money/income. Use your portfolio size excluding the co-op for your planning.

What is your actual portfolio size?

KlangFool
$1.213 million as of 8/31. That of course excludes pension and social security, although some people say those should be counted as fixed income when determining AA.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

placeholder wrote: Sun Sep 19, 2021 6:59 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 6:47 pm Duly noted, thank you. Forgive me, I’m new (joined today!!)
It was not an admonishment just information because you don't want your posts edited or deleted.
I didn’t take offense. Thank you for letting me know that rule.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

GMCZ71 wrote: Sun Sep 19, 2021 7:33 am
AnnetteLouisan wrote: Sun Sep 19, 2021 6:29 am
gcb65 wrote: Sun Sep 19, 2021 6:10 am Your asset allocation is extremely risk adverse.
How do you feel when the value of a fund go down 20, 30% of more? Have you ever sold equity when the market dropped? Would you do it again?
I’ve never sold when the market dropped. I’ve stopped contributions to funds that had negative annual returns. I want to protect myself from the coming market correction given my age.
A market correction can be something good. Think of your 72 times annual spend in a linear way..

Years 1-15 or more years (each person is diff) needs to be cash, bonds, cds etc.
Years x-72 needs to be stocks.
With the market correction you move more years to stocks at a lower price.
If the market is high and frothy move some years back into cash, bonds.

This is asset allocation and once you get the hang of it you only need make changes in your holdings a couple times or zero per year.
Would you say the market is high and frothy now? If so, would it be the time to move some more of my holdings into bonds? Or does TINA apply (There Is No Alternative)?
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

ShowMeTheER wrote: Sun Sep 19, 2021 1:23 am Great expense control. You are racking up the cash with a good job.

Start a taxable account if you are comfortable, investing in equity index fund(s).

Ride your current situation for another 5 years (or more) and retire in style.
Thank you!
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

Wiggums wrote: Sun Sep 19, 2021 7:44 pm I retired at 56 and I became more conservative with our portfolio. Having said that, we still buy into an index fund because we have a long time in retirement. I can see holding cash for Roth conversions, a few years of annual expenditures, etc. beyond that, the money would serve you better by being in the market. My mother is 92 and she is in the Wellesley fund. Having 30% equities should beat inflation and is quite conservative. I would encourage you to invest some of your cash.
Are you glad you retired at 56? I have an early retirement option at 57 and that may well be what I do. Thanks for the perspective on your mom. My mom is 88 and my dad is 86, both still very active thank goodness. They are not in the market at all but would have benefitted. My brother cackles with glee as he is thoroughly invested in individual stocks that he chose via his own self-developed investment philosophy. I’d love for him to take the Series 63 and do it for a living.
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Re: Where Do I Go From Here

Post by Zardoz »

AnnetteLouisan wrote: Sun Sep 19, 2021 7:27 pm Thank you for the congrats! First million’s the hardest, they say, right? I would definitely not be confident retiring tomorrow because I live in a VHCOL area with ultra high and increasing taxes in an inflationary environment, and half my portfolio hasnt been taxed yet.
This is a good example of something to research in more detail: your exact marginal tax rates at relatively lower rates of income, and exactly how much income would you need to generate from withdrawals, since you already have almost $1M in after tax money. At lower income levels, marginal taxation is surprisingly low, even in high cost of living areas and "high tax" states, because of the progressive nature of tax rates. As earners we get used to higher tax rates, but the equation changes significantly if we are only living off of our investment accounts. For an interesting example, see https://www.gocurrycracker.com/never-pay-taxes-again/
It’s mostly that having 650 in banks earning nothing in an inflationary climate is starting to wear on me. Plus my brother’s in stocks and can’t believe I would knowingly leave so much on the table for effectively no reason. I just want to do what is necessary to be a good steward of my life’s savings, which took enormous effort to earn. I’ll check out the books and the links above. Thank you.
That makes sense. That's probably one thing almost everyone here will agree on - that it doesn't make sense to have that much sitting in cash.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

Zardoz wrote: Sun Sep 19, 2021 8:52 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 7:27 pm Thank you for the congrats! First million’s the hardest, they say, right? I would definitely not be confident retiring tomorrow because I live in a VHCOL area with ultra high and increasing taxes in an inflationary environment, and half my portfolio hasnt been taxed yet.
This is a good example of something to research in more detail: your exact marginal tax rates at relatively lower rates of income, and exactly how much income would you need to generate from withdrawals, since you already have almost $1M in after tax money. At lower income levels, marginal taxation is surprisingly low, even in high cost of living areas and "high tax" states, because of the progressive nature of tax rates. As earners we get used to higher tax rates, but the equation changes significantly if we are only living off of our investment accounts. For an interesting example, see https://www.gocurrycracker.com/never-pay-taxes-again/
It’s mostly that having 650 in banks earning nothing in an inflationary climate is starting to wear on me. Plus my brother’s in stocks and can’t believe I would knowingly leave so much on the table for effectively no reason. I just want to do what is necessary to be a good steward of my life’s savings, which took enormous effort to earn. I’ll check out the books and the links above. Thank you.
That makes sense. That's probably one thing almost everyone here will agree on - that it doesn't make sense to have that much sitting in cash.
Wow, I read the article in the link. Definitely another reason to open an IRA, have capital gains in a taxable brokerage account and be less afraid of retiring before 60.
Last edited by AnnetteLouisan on Sun Sep 19, 2021 9:27 pm, edited 1 time in total.
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Re: Where Do I Go From Here

Post by Duckie »

AnnetteLouisan wrote: Sun Sep 19, 2021 8:17 pm Would you say the market is high and frothy now? If so, would it be the time to move some more of my holdings into bonds?
More bonds??? Right now you have:
  • 9% ($113,000) in US stocks (C Fund, S Fund, and 500 Index)
  • 1% ($6,500) in international stocks (I Fund)
  • 90% ($1,070,000) in bonds/cash (G Fund, Baird, Stable Value, I Bonds, and Cash)
90% bonds/cash is extreeeeeeemely conservative. Are you really sure that's what you want?

In my opinion you need to take some of that $650,000 cash and put in into stocks. A total US stock index fund and a total international stock index fund. In the 401k I would sell the Baird Core Bond and buy 500 Index. If you do want more bonds use the F or G Funds in the TSP.

If you decide you want a tax-exempt municipal bond index fund in your taxable account consider VTEB or MUB. As ETFs they can be purchased at Vanguard, Fidelity, or Schwab without a transaction fee.
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Re: Where Do I Go From Here

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Duckie wrote: Sun Sep 19, 2021 9:19 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 8:17 pm Would you say the market is high and frothy now? If so, would it be the time to move some more of my holdings into bonds?
More bonds??? Right now you have:
  • 9% ($113,000) in US stocks (C Fund, S Fund, and 500 Index)
  • 1% ($6,500) in international stocks (I Fund)
  • 90% ($1,070,000) in bonds/cash (G Fund, Baird, Stable Value, I Bonds, and Cash)
90% bonds/cash is extreeeeeeemely conservative. Are you really sure that's what you want?

In my opinion you need to take some of that $650,000 cash and put in into stocks. A total US stock index fund and a total international stock index fund. In the 401k I would sell the Baird Core Bond and buy 500 Index. If you do want more bonds use the F or G Funds in the TSP.

If you decide you want a tax-exempt municipal bond index fund in your taxable account consider VTEB or MUB. As ETFs they can be purchased at Vanguard, Fidelity, or Schwab without a transaction fee.
Great advice, thank you.

My risk aversion derives in part from knowing and reading about so very many people who lost their money in investments and otherwise in 1987, 1992, 2000 and 2008 when it was too late for them to recoup the money. Seeing Lehman, Bear, DLJ, Daiwa, Madoff and Janus go from leading edge to bankrupt. Seeing the CP markets freeze, auction rate securities go illiquid, SIVs get forced into bankruptcy, Enron, Worldcom, Wirecard. And the financial press has been ringing alarm bells for quite a while now.

However, thanks to everyone’s input I see that I need to invest some of my cash into a low ER broad based stock fund at one of the big 3 reputable brokerages, open an IRA and convert, do the HSA, put another 10k in the I bonds in January and sell some of the Baird Fund. I will also focus on my portfolio rather than NW and up my equity percentages while respecting my risk tolerance.

Hope I got that right. Thanks to everyone who took the time to weigh in on my situation today. I really appreciate it.
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

I‘m inclined to adjust my future allocations / new money in my 401k and get the higher equity allocation that way, dollar cost averaging in. Easier than selling existing positions in the portfolio and more gradual. And if there is a price dip I’d be poised to take advantage I suppose.

Thanks again all for devoting valuable weekend time to getting me out of my paralysis.

I just opened and funded my first tIRA ever! Woo!
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Re: Where Do I Go From Here

Post by AnnetteLouisan »

Duckie wrote: Sun Sep 19, 2021 5:29 pm
AnnetteLouisan wrote: Sun Sep 19, 2021 5:07 pm Can I do the backdoor Roth with my bank (like an IRA CD) or my 401k provider (TRowe) or does it have to be through a brokerage?
You can open a TIRA and Roth IRA at a bank but I don't recommend that. Their options are usually expensive and you don't want a cash CD in your Roth account anyway. In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds/cash) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free.

You're better off at a major brokerage. TRowePrice doesn't have the best options so I wouldn't use them for a personal IRA. Fidelity, Vanguard, and Schwab all have a line-up of low-cost index funds and have no transaction fees for ETFs. They are what we generally recommend. They would also be suitable for a taxable account.
I went with Fidelity and funded a tIRA. Once the funds hit I‘ll convert to a backdoor Roth.

As to AA, I can handle up to 30 percent equities. More than that I couldn’t sleep at night. At 25 percent equities, I could sleep like a happy baby in a warm blanket. Maybe I’ll aim for 25 percent by year end, 30 next year if I feel comfortable. The issue is whether to count my cash, pension, and ss as bonds? What is my denominator? sigh...
Last edited by AnnetteLouisan on Sat Sep 25, 2021 5:32 pm, edited 1 time in total.
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