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Many thanks for your advice! I am a woman. I have no investment experience at all. I guess my pucker factor is quite low for now. Talking about picking a fund, indexed or target-date, is there a certain rule to follow? Which ones shall I pick?
There is no hard-and-fast rule about which type of fund to pick (except for the rule that you want a fund with low fees). Either a target-date fund or one of the balanced funds lottamoxie has suggested (or similar balanced funds offered by other companies such as Fidelity or Charles Schwab) would be fine. So I suggest you put the money in an FDIC-insured savings account for the moment, and leave it there until you've had the time to read the book Sporty has recommended (The Bogleheads' Guide to Investing). Then you'll have a better sense of what you personally want to do. The book is short and easy to read; it won't take you long to go through it, and you'll feel much more confident afterwards.
Investing is 90% in your head - and I don't mean deep thinking, I mean learning how to sit tight and stick with a good plan despite whatever the markets may be doing at any given moment. Emotions are your enemy when it comes to making investment decisions!
And the warning against analysis paralysis is also good. Don't worry too much about crafting the perfect investment plan; it's better to pick a good-enough one and just get started. "A good plan violently executed now is better than a perfect plan executed next week." General Patton knew what he was talking about!
Speaking of the pucker factor, I know how I feel about if I saw my investments drop 50% in a short period of time - not good! However, I also know that would be a great time to buy.
My primary concern as a new investor (and I'm going to catch up quickly - I've bought the Bogleheads books and am reading the Wiki referenced, as well as Rich Dad, Poor Dad and others) is that I am 42 years old and my balances are as follows:
Rollover IRA (recently rolled to Schwab) ~$60k - did the 3 Fund portfolio thing and have 35% in SWTSX, 20% in SWAGX and 45% in SWISX.
ROTH IRA (in process of rolling to WiseBanyan) - ~$16k - since I'm in the process of rolling, this is all currently in cash.
I also have ~$10k in a brokerage account that I'm moving to Schwab as well.
I have about ~$80k in cash and between my wife and I we have about $56k in student loan debt (at low rates). I'm currently in between jobs, so I'm holding onto the liquidity while earning a WAR of 2.55% on my cash.
My wife is 12 years younger than me, but has virtually nothing saved. We started a SEP IRA for her recently and now have $5k-ish in it.
My fear is increased at the moment because I really don't think I can afford a steep drop in the market, and since I am not really an expert in investing, I'm not sure if I'm better off playing it safer when the bigger drops are more likely or if I just ride it out since I have 23 more years to retirement.
I'm an analyst by nature, so the paralysis is real and frustrating, especially when I'm trying to analyze something I'm less educated about.
Any thoughts to my situation would be appreciated.
My fear is increased at the moment because I really don't think I can afford a steep drop in the market, and since I am not really an expert in investing, I'm not sure if I'm better off playing it safer when the bigger drops are more likely or if I just ride it out since I have 23 more years to retirement.
I'm an analyst by nature, so the paralysis is real and frustrating, especially when I'm trying to analyze something I'm less educated about.
Any thoughts to my situation would be appreciated.
DO NOT make investment decisions based on how you are feeling! DO NOT, DO NOT, DO NOT!!! This is hands-down the #1 mistake investors make, and it costs them dearly.
You don't need that money in your retirement accounts for another 23 years. So yes, you CAN afford a steep drop in the market today, as you'll have the next 23 years for the account to recover and grow. There WILL be more than one bear market during that time period, and you can't accurately predict when and how prolonged they will be. Your asset allocations are reasonable (although I'd probably decrease the percentage of international stock down to 30% in favor of US stocks). I recommend you just sit on your hands and do nothing! Just keep adding to your IRA and Roth IRA regularly and pay no attention to the market noise. When you get to age 55 or so, then it's time to reconsider whether to dial your asset allocations down to something more conservative, but at age 42 that move is premature.
DO NOT make investment decisions based on how you are feeling
This is so so important.
You'll notice the forum has its share of emo-lillies (delicate flower types) who obsessively watch the market day by day, almost hourly, and react to every little thing, and schadenfreudes, who will try and get you to believe whatever path you're choosing is so much less optimal than what it could have been and you'll never succeed.
Ignore all of that noise, don't take the bait.
If you're determined to be a long-term investor, and I think that's an appropriate goal, then practice good investing behaviors and focus on that. That's the one thing you can control. Good investor behaviors will serve you well throughout your investing life.
DO NOT make investment decisions based on how you are feeling! DO NOT, DO NOT, DO NOT!!! This is hands-down the #1 mistake investors make, and it costs them dearly.
You don't need that money in your retirement accounts for another 23 years. So yes, you CAN afford a steep drop in the market today, as you'll have the next 23 years for the account to recover and grow. There WILL be more than one bear market during that time period, and you can't accurately predict when and how prolonged they will be. Your asset allocations are reasonable (although I'd probably decrease the percentage of international stock down to 30% in favor of US stocks). I recommend you just sit on your hands and do nothing! Just keep adding to your IRA and Roth IRA regularly and pay no attention to the market noise. When you get to age 55 or so, then it's time to reconsider whether to dial your asset allocations down to something more conservative, but at age 42 that move is premature.
Sit tight. That is 90% of investment success.
Thanks - I started my WiseBanyan account and put that I wanted to invest aggressively with my ROTH money, and one question they ask to determine how to invest for you is, how do you react if your positions decline by 30%+?
I selected the answer of buying more and holding steady because I know that is the right thing to do despite how I feel about it.
]Speaking of the pucker factor, I know how I feel about if I saw my investments drop 50% in a short period of time - not good! However, I also know that would be a great time to buy.[/b]
My primary concern as a new investor (and I'm going to catch up quickly - I've bought the Bogleheads books and am reading the Wiki referenced, as well as Rich Dad, Poor Dad and others) is that I am 42 years old and my balances are as follows:
Rollover IRA (recently rolled to Schwab) ~$60k - did the 3 Fund portfolio thing and have 35% in SWTSX, 20% in SWAGX and 45% in SWISX.
ROTH IRA (in process of rolling to WiseBanyan) - ~$16k - since I'm in the process of rolling, this is all currently in cash.
I also have ~$10k in a brokerage account that I'm moving to Schwab as well.
I have about ~$80k in cash and between my wife and I we have about $56k in student loan debt (at low rates). I'm currently in between jobs, so I'm holding onto the liquidity while earning a WAR of 2.55% on my cash.
My wife is 12 years younger than me, but has virtually nothing saved. We started a SEP IRA for her recently and now have $5k-ish in it.
My fear is increased at the moment because I really don't think I can afford a steep drop in the market, and since I am not really an expert in investing, I'm not sure if I'm better off playing it safer when the bigger drops are more likely or if I just ride it out since I have 23 more years to retirement.
I'm an analyst by nature, so the paralysis is real and frustrating, especially when I'm trying to analyze something I'm less educated about.
Any thoughts to my situation would be appreciated.
I bet you wouldn't, unless you have lived thru a 50% decline market you most likely would not know it was a good time to buy. During the time period of 2007-09- there were many times it appeared we would be experiencing another great depression or even worse as the entire system was collapsing. My own personal experience is I did buy in some during the period but certainly was not all in as I shored up any debt/ leverage so I knew I owned what I owned and had plenty of cash to see me thru if the situation turned into a multi decade long depression. Many bought in when the decline was 10%-20% thinking the bottom was in only to have the market decline much further.
Looking back- sure I wish I had gone "all in" in 2009 but you also have to be prepared for the worst. I am glad I bought in some and did not sell any equities during the period but when your living thru a situation in which there is a 50% market decline the world looks pretty bleak.
Folks, thanks again for all the detailed suggestions! You are like the lighthouses, guiding me to find my way out of the deep fog... I have started my learning and found investment is quite interesting. I wish I have started much earlier! I am currently 44yrs old. I guess I will have at least 20 yrs before retirement. Well, it is never too late to get started.
I have a conference meeting yesterday with my banker. One thing he proposed is to put $50K to the 1 or 5 years structured CD.
Take the 5yrs CD as an example, they use 5 different stocks as reference: BMY, GM, INTC, IBM, VZ. On the annual interest payment date (which will be the exact same day&month you opened such account), if the prices of all reference stocks are greater than their initial prices (initial price refers to the stock prices on the date you opened your CD account), then you will get the Minimum Interest Rate (MIR) + Performance Rate. Otherwise, you will only get the MIR, which is 1.35% (or .75%) depending on the option you choose. Performance rate could be 3.65% with 1.35% as MIR, or 7.25% with .75% as MIR.
Question #1: From your experience, shall I invest some fund into such CD? The structured CD looks like a gambling to me! My earning is at the mercy of those 5 reference stocks' performance on a particular date! Shall I just put some fund into the regular CD? Or put all investment money into the brokerage account and put the emergency fund into the saving account?
Question #2: I researched online and it looks like some online banks offer quite decent interest rate for saving account: Ally Bank 1.45%, Capital One 360 1.50%, CIT Bank 1.75%, Goldman Sachs Bank USA 1.60%. If I plan to move $200k to a saving account first (like Aredhel suggested), are all these online banks good options?
Thanks again for your advice!
Last edited by lifehappen; 04-17-2018 at 12:19 PM..
^^^The online banks you've mentioned are fine, as long as you're comfortable doing all your dealings via phone or email.
I think one thing you need to decide is how much of the money you have you want to keep as an emergency fund, and how much you wish to invest. Emergency fund money needs to be fairly liquid, so it should be kept in a savings account or a CD ladder (you don't want to put it all into a single CD, because if something comes up and you need the money before the CD matures, you'll pay a penalty to break it). The investment portion of the money goes into stock funds/bonds or bond funds/real estate.
Do look around and see if there is a Fidelity or Charles Schwab office near you. You don't want to be doing your investing with your bank!
Folks, thanks again for all the detailed suggestions! You are like the lighthouses, guiding me to find my way out of the deep fog... I have started my learning and found investment is quite interesting. I wish I have started much earlier! I am currently 44yrs old. I guess I will have at least 20 yrs before retirement. Well, it is never too late to get started.
With at least 20 years to go, you'll be fine. You're not going to end up in the poor house eating dog food. So sleep well at night.
I'm going to revise my advice. I had forgotten about WiseBanyan, Betterment, Wealthfront and other so-called "Robo Advisors."
In my earlier post, I said investing is easy, and avoiding common mistakes is easy. By that I mean you don't have to be a rocket scientist. Many of us (me included) will get into the weeds, but that really isn't necessary.
Doing the right thing is so easy, many companies have "robo advisors" which are plain straightforward rules-based investing systems where they act on the recommendations on your behalf. These rules are very similar to the advice in this thread - putting money into very well diversified funds (either ETFs or Mutual Funds) that have low expense ratios (very important) and where the robo advisor company charges you a very low fee (in contrast to your bank).
Robo advisors have become quite successful in a short period of time - so successful that traditional low-cost brokerages such as Schwab, Fidelity, Ameritrade and others have responded with their own competitor products.
For you, I suggest putting $200K into one of these Robo Advisors. I have personally never put money into them so I don't have direct knowledge. Do a bit of online research and read reviews to select one. It isn't uncommon for them to offer a promotion - bring over $X and they'll give you $Y as a welcome present. That's a good deal, given you have another 20 years for that $Y to grow.
Quote:
Originally Posted by lifehappen
I have a conference meeting yesterday with my banker. One thing he proposed is to put $50K to the 1 or 5 years structured CD.
Take the 5yrs CD as an example, they use 5 different stocks as reference: BMY, GM, INTC, IBM, VZ. On the annual interest payment date (which will be the exact same day&month you opened such account), if the prices of all reference stocks are greater than their initial prices (initial price refers to the stock prices on the date you opened your CD account), then you will get the Minimum Interest Rate (MIR) + Performance Rate. Otherwise, you will only get the MIR, which is 1.35% (or .75%) depending on the option you choose. Performance rate could be 3.65% with 1.35% as MIR, or 7.25% with .75% as MIR.
Question #1: From your experience, shall I invest some fund into such CD? The structured CD looks like a gambling to me! My earning is at the mercy of those 5 reference stocks' performance on a particular date!
I would not do it. I don't like such structured products. It costs the bank money to manufacture these structured products; such manufacturing costs are paid for -- one way or another -- by the investor. It is coming out of your hide. It is very possible your banker receives some form of incentive compensation if you buy it.
Quote:
Originally Posted by lifehappen
Question #2: I researched online and it looks like some online banks offer quite decent interest rate for saving account: Ally Bank 1.45%, Capital One 360 1.50%, CIT Bank 1.75%, Goldman Sachs Bank USA 1.60%. If I plan to move $200k to a saving account first (like Aredhel suggested), are all these online banks good options?
Yes
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