Give more to 401k/IRA, or do some plain ol' investing?

Hi, all. Thanks in advance for any help on the following, and I hope
this question is appropriate for a mutual funds group.

My situation: I'm 35 and have been putting money into a 401k and an IRA
(Vanguard Target Retirement Fund 2045) for the past few years. I've
gotten a new job recently that pays a lot more but is in a pricey city.
So right now, I'm contributing about $450/month to my new company's
401k, and $100/month to the Vanguard IRA. (I'm putting more toward the
401k because of company matching and because the tax breaks leave me
with more take-home money, which I need right now.)

WIth all that in mind, I'd kind of like to fool around a bit more with
investing. In particular, I'd like to invest in the energy market and
in developing markets, such as China and India. So, I was thinking of
contributing maybe $50/month each to the Vanguard Energy Fund and the
Vanguard Emerging Markets Stock Index Fund.

Questions:
1) Are the items in my portfolio overlapping too much if I invest in an
Energy and an Emerging Markets fund, when I already have a Target
Retirement Fund that invests in a wide range of things (including
energy and foreign market stocks)?

2) Given that I'm not maxing out my IRA potential, should I put that
extra $100/month into the IRA (or another IRA) instead of into some
non-retirement investment?

3) Should I go with stocks rather than funds? I don't know much about
the stock market right now, so I figure index funds would be easier for
now.

4) Is it a bad idea to do all my investing via one company (i.e.,
Vanguard). My 401k is with a different company, but I'm wondering if I
should also spread out my other investments amongst multiple firms,
just in case one of them fails for some reason or turns out to be
crooked or whatever.

Thanks for any thoughts on all that!
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

Hi Mike,

Couple of quick rules, so to speak. Invest in your 401K to the extent
you get ALL company match. Then fund your Roth IRA for the year.
Thereafter, you can either put more into your 401, or invest in a
taxable acct. You should also have an emergency fund equal to between
3-6 months worth of expenses.

You didn't say if your IRA was a Roth. If not, you should start one.

As for investing in energy and emerging mkts, why not turn your IRA at
Vanguard into a brokerage version and go with whatever your heart
desires? This could be other company funds, individual stocks, or
perhaps the best idea in this particular medium - Exchange Traded
Funds, or ETF's. Vanguard has a slew of them, as do many other houses.
The trade like stock, but each represents the index of a particular
segment, sector, region, country , or even sub-sector of the stock
market. There are literally dozens of different ones covering energy
and emerging mkts.

just some thoughts,

rono

Re: Give more to 401k/IRA, or do some plain ol' investing?

<> wrote in message
news:
> Hi, all. Thanks in advance for any help on the following, and I hope
> this question is appropriate for a mutual funds group.
>
> My situation: I'm 35 and have been putting money into a 401k and an IRA
> (Vanguard Target Retirement Fund 2045) for the past few years. I've
> gotten a new job recently that pays a lot more but is in a pricey city.
> So right now, I'm contributing about $450/month to my new company's
> 401k, and $100/month to the Vanguard IRA. (I'm putting more toward the
> 401k because of company matching and because the tax breaks leave me
> with more take-home money, which I need right now.)
>
> WIth all that in mind, I'd kind of like to fool around a bit more with
> investing. In particular, I'd like to invest in the energy market and
> in developing markets, such as China and India. So, I was thinking of
> contributing maybe $50/month each to the Vanguard Energy Fund and the
> Vanguard Emerging Markets Stock Index Fund.
>
> Questions:
> 1) Are the items in my portfolio overlapping too much if I invest in an
> Energy and an Emerging Markets fund, when I already have a Target
> Retirement Fund that invests in a wide range of things (including
> energy and foreign market stocks)?

No. The Target fund is an allocation fund that avoids speculative plays.
Even the "agressive" allocation funds I'm familiar with aren't "aggressive"
in the sense an individual investor might be. There's nothing wrong with an
Energy and Emerging Markets play outside the fund to get some additional
returns.

>
> 2) Given that I'm not maxing out my IRA potential, should I put that
> extra $100/month into the IRA (or another IRA) instead of into some
> non-retirement investment?

Always max the qualified funds first.
>
> 3) Should I go with stocks rather than funds? I don't know much about
> the stock market right now, so I figure index funds would be easier for
> now.

I would. I don't have an Energy, but EEM is a great ETF which indexes the
MSCI Emerging Markets Index.
>
> 4) Is it a bad idea to do all my investing via one company (i.e.,
> Vanguard). My 401k is with a different company, but I'm wondering if I
> should also spread out my other investments amongst multiple firms,
> just in case one of them fails for some reason or turns out to be
> crooked or whatever.

I have no comment on this one. Fidelity has most of my 401K and my IRA's,
Ameritrade has my personal account, but I'll probably move the Ameritrade to
Fidelity sometime this year.

Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

wrote:
> Hi, all. Thanks in advance for any help on the following, and I hope
> this question is appropriate for a mutual funds group.
>
> My situation: I'm 35 and have been putting money into a 401k and an IRA
> (Vanguard Target Retirement Fund 2045) for the past few years.

This is a very sensible strategy. There is a degree of automatic
rebalancing in what Vanguard does, which is good.

I've
> gotten a new job recently that pays a lot more but is in a pricey city.
> So right now, I'm contributing about $450/month to my new company's
> 401k, and $100/month to the Vanguard IRA. (I'm putting more toward the
> 401k because of company matching and because the tax breaks leave me
> with more take-home money, which I need right now.)
>
> WIth all that in mind, I'd kind of like to fool around a bit more with
> investing. In particular, I'd like to invest in the energy market and
> in developing markets, such as China and India. So, I was thinking of
> contributing maybe $50/month each to the Vanguard Energy Fund and the
> Vanguard Emerging Markets Stock Index Fund.
>
> Questions:
> 1) Are the items in my portfolio overlapping too much if I invest in an
> Energy and an Emerging Markets fund, when I already have a Target
> Retirement Fund that invests in a wide range of things (including
> energy and foreign market stocks)?

-- no but you are losing diversification-- you are effectively doubling
your bets in some areas. You are also chasing last year's 'hot
performers'. It would be just as logical to target a sector which has
underperformed but there is a lot of cash flow and, arguably, value--
like pharmaceuticals. I'm not against an exposure to EM, but you have
to take the long view, if you look back over the 1990s these did not
perform for most investors (huge runup on relatively small funds pre
Mexico crash, then doldrums for much of the rest of the 90s, then came
the Russia Crash, then Argentina in 2001). EMs have done very well on
the back of lower US interest rates, and the nature of EMs is that some
graduate to becoming developed markets (Korea is perhaps close to that
point) and, periodically, others blow up -- Mexico in 1994, Brasil,
Argentina, Asia in 1997, Russia in 1998 etc. Note that in a blow up, a
market can drop 90%, and other EMs, which are not remotely connected,
can drop 70% in sympathy.

I'm all for boredom with my retirement savings. A total market index
fund, an international stock fund, and, for interest, a value fund.
This is money that you *must* have, in some form, 30 years from now--
you can't afford to lose it and not be able to earn it back. So the
maximum diversification (within a risky asset class, ie equities) seems
prudent.

>
> 2) Given that I'm not maxing out my IRA potential, should I put that
> extra $100/month into the IRA (or another IRA) instead of into some
> non-retirement investment?

over to US tax expertise.
>
> 3) Should I go with stocks rather than funds? I don't know much about
> the stock market right now, so I figure index funds would be easier for
> now.

No. You need a portfolio of nearly 40 stocks to fully diversify risk.
Individual stock investing only Professional stockpickers underperform
index funds, why should you beat the professionals who work 12 hours a
day on markets and have access to the best and most timely information?

>
> 4) Is it a bad idea to do all my investing via one company (i.e.,
> Vanguard). My 401k is with a different company, but I'm wondering if I
> should also spread out my other investments amongst multiple firms,
> just in case one of them fails for some reason or turns out to be
> crooked or whatever.

I'm not sure what the actual legal position is, but Vanguard is either
the second or third largest mutual fund company in the US. A scenario
where Vanguard was financially in trouble *and* the legally separate
assets of its fundholders are somehow compromised would be so
catastrophic as to be unimaginable (head for the hills with guns and
ammo territory). Since Vanguard is not a principal, but rather an
advisor, its funds are held separately from Vanguard the company.
AFAIK.



>
> Thanks for any thoughts on all that!
> Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

My IRA is a Roth, actually. However, I read that the tax benefits of a
Roth end once you make a certain amount of money, and I belive I'm over
that level. If that's the case, is a Roth any different than a
traditional IRA for me? Just curious.

So, I'm not exactly sure what you mean by brokerage version. Reading
the responses here have made me realize how much of a newbie I am in
this area. I'll research what that means, though, and also look into
ETF's, which I haven't yet encountered.

Thanks for the info,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

> Always max the qualified funds first.

So I should max out my 401k, then max out my IRA, and then worry about
non-retirement investing? I'm not sure I CAN max any of those out right
now, unfortunately. I live in a very high cost-of-living city, and I'm
not sure I can put more than my current 7% of salary into the 401k. I
could up the percentage a point or two, perhaps, by foregoing
contributions to the IRA and by tightening my belt a little. Is that
the generally recommended strategy: max the IRA if at all possible, and
then only after that worry about the IRA, which should be maxed before
any other investing is done?

I'll look into ETFs, too. Don't know too much about them.

Thanks much,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

> I'm all for boredom with my retirement savings. A total market index
> fund, an international stock fund, and, for interest, a value fund.

Is one fund (e.g., the Vangaurd Total Retirement Fund) that invests in
all of that to various degrees over the years good enough, do you
think?

> No. You need a portfolio of nearly 40 stocks to fully diversify risk.
> Individual stock investing only Professional stockpickers underperform
> index funds, why should you beat the professionals who work 12 hours a
> day on markets and have access to the best and most timely information?

The gist here is that there's no way I can put in the same time/effort
that the professionals do, so the funds are a safer bet, correct?

Thanks for the info,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

My IRA is a Roth, actually. However, I read that the tax benefits of a
Roth end once you make a certain amount of money, and I believe I'm
over
that level. If that's the case, is a Roth any different than a
traditional IRA for me? Just curious.

I'm not exactly sure what you mean by brokerage version. Reading the
responses here have made me realize how much of a newbie I am in this
area. I'll research what that means, though, and also look into ETF's,
which I haven't yet encountered.

Thanks for the info,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

> Always max the qualified funds first.

So I should max out my 401k, then max out my IRA, and then worry about
non-retirement investing? I'm not sure I CAN max any of those out right

now, unfortunately. I live in a very high cost-of-living city, and I'm
not sure I can put more than my current 7% of salary into the 401k. I
could up the percentage a point or two, perhaps, by foregoing
contributions to the IRA and by tightening my belt a little. Is that
the generally recommended strategy: max the IRA if at all possible, and
then only after that worry about the IRA, which should be maxed before
any other investing is done?

I'll look into ETFs, too. Don't know too much about them.

Thanks much,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

> I'm all for boredom with my retirement savings. A total market index
> fund, an international stock fund, and, for interest, a value fund.

Is one fund (e.g., the Vangaurd Total Retirement Fund) that invests in
all of that to various degrees over the years good enough, do you
think?

> No. You need a portfolio of nearly 40 stocks to fully diversify risk.
> Individual stock investing only Professional stockpickers underperform
> index funds, why should you beat the professionals who work 12 hours a
> day on markets and have access to the best and most timely information?

The gist here is that there's no way I can put in the same time/effort
that the professionals do, so the funds are a safer bet, correct?

Thanks for the info,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

My IRA is a Roth, actually. However, I read that the tax benefits of a
Roth end once you make a certain amount of money, and I believe I'm
over that level. If that's the case, is a Roth any different than a
traditional IRA for me? Just curious.

I'm not exactly sure what you mean by brokerage version. Reading the
responses here have made me realize how much of a newbie I am in this
area. I'll research what that means, though, and also look into ETF's,
which I haven't yet encountered.

Thanks for the info,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

> Always max the qualified funds first.

So I should max out my 401k, then max out my IRA, and then worry about
non-retirement investing? I'm not sure I CAN max any of those out right

now, unfortunately. I live in a very high cost-of-living city, and I'm
not sure I can put more than my current 7% of salary into the 401k. I
could up the percentage a point or two, perhaps, by foregoing
contributions to the IRA and by tightening my belt a little. Is that
the generally recommended strategy: max the IRA if at all possible, and

then only after that worry about the IRA, which should be maxed before
any other investing is done?

I'll look into ETFs, too. Don't know too much about them.

Thanks much,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

> I'm all for boredom with my retirement savings. A total market index
> fund, an international stock fund, and, for interest, a value fund.

Is one fund (e.g., the Vangaurd Total Retirement Fund) that invests in
all of that to various degrees over the years good enough, do you
think?

> No. You need a portfolio of nearly 40 stocks to fully diversify risk.
> Individual stock investing only Professional stockpickers underperform
> index funds, why should you beat the professionals who work 12 hours a
> day on markets and have access to the best and most timely information?

The gist here is that there's no way I can put in the same time/effort
that the professionals do, so the funds are a safer bet, correct?

Thanks for the info,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

Your interests here seem to be oriented more towards financial planning,
rather than mutual funds. May I suggest you also ask this question at
misc.invest.financial-plan (also known as MIFP)? It is a moderated
newsgroup, with pretty quick turnaround time.

A few comments --

1. The rule of thumb for prioritizing retirement saving is:
(a) contribute to 401(k) up to employer's match
(b) contribute to Roth IRA to max
(c) resume contributions to 401(k)

2. It sounds like you want more say over your portfolio allocation.
Generally speaking, the fees for this are going to be a tad more expensive
than sticking with a Target retirement fund. On the other hand the returns
might be better, too. Also, if you stick with Vanguard funds, the fees are
going to be on the low side, period.

3. For ideas on how much to put towards emerging markets, etc., I would
experiment with free online allocation tools such as those listed at
. Set allocation % goals.
Review your goals, and prepare to rebalance, about once a year. Set this up
on a spreadsheet, so you can easily track what the big picture is for your
401(k), IRAs, and non-tax-sheltered retirement savings.

4. Stock picking takes a lot of time. I would stick with index funds.

5. I think the only reason to have more than one brokerage is to permit an
investor to have more than one option at all times. I think you'll be fine,
for now, with just one brokerage institution. If you really don't feel
comfortable with this, then have as many as three at any time, and start
getting some experience with how the quality of service can vary.

6. Do you have any idea how much money you need to save to retire by a
certain age? For this, you need to know your monthly expenses and have some
idea of how these might change. I think for many people it's helpful to have
a goal in mind. I recommend experimenting with more online calculators to
give you some ideas.

It sounds like you have some notion that you need to save for retirement,
but not how much, nor how to do it optimally. So you're definitely on the
right track, and you're doing right by asking good questions. Keep up the
good work. See you at MIFP? :-)

Re: Give more to 401k/IRA, or do some plain ol' investing?

Ragamoffy, can you please quote a little of the post to which you are
replying? It's hard to tell at a glance.

<> wrote
> My IRA is a Roth, actually. However, I read that the tax benefits of a
> Roth end once you make a certain amount of money, and I belive I'm over
> that level. If that's the case, is a Roth any different than a
> traditional IRA for me? Just curious.
>
> So, I'm not exactly sure what you mean by brokerage version. Reading
> the responses here have made me realize how much of a newbie I am in
> this area. I'll research what that means, though, and also look into
> ETF's, which I haven't yet encountered.

Re: Give more to 401k/IRA, or do some plain ol' investing?

> Ragamoffy, can you please quote a little of the post to which you are
> replying? It's hard to tell at a glance.

Elle,

Sorry. I was looking at the messages under the threaded option on the
group website, rather than the sort-by-date, so didn't take into
account that my posts might be confusing in alternate views or
browsers. (I also accidentally posted my replies under an alternate
email address, so I deleted and reposted them under the original
address.)

Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

Elle,

> Your interests here seem to be oriented more towards financial planning,
> rather than mutual funds. May I suggest you also ask this question at
> misc.invest.financial-plan (also known as MIFP)? It is a moderated
> newsgroup, with pretty quick turnaround time.

I did try that group, actually, before this one. I only got one reply,
though, and I wanted to get a wider range of opinions. So I tried here,
thinking that the people on this group might be able to help with the
overlapping-funds and funds-vs.-stocks issues.

Thanks for the other info,
Mike

Re: Give more to 401k/IRA, or do some plain ol' investing?

Mike, for what it's worth, I suggest you post again to MIFP and state you
only got one reply. Then ask others to please chime in. Or lurk there. Over
the course of two months, many folks ask questions there similar to yours.
Good luck. E

<> wrote
> Elle,
>
>> Your interests here seem to be oriented more towards financial planning,
>> rather than mutual funds. May I suggest you also ask this question at
>> misc.invest.financial-plan (also known as MIFP)? It is a moderated
>> newsgroup, with pretty quick turnaround time.
>
> I did try that group, actually, before this one. I only got one reply,
> though, and I wanted to get a wider range of opinions. So I tried here,
> thinking that the people on this group might be able to help with the
> overlapping-funds and funds-vs.-stocks issues.
>
> Thanks for the other info,
> Mike
>

Re: Give more to 401k/IRA, or do some plain ol' investing?

"Elle" <> wrote in message
news:5nNGf.16414$
> Your interests here seem to be oriented more towards financial planning,
> rather than mutual funds. May I suggest you also ask this question at
> misc.invest.financial-plan (also known as MIFP)? It is a moderated
> newsgroup, with pretty quick turnaround time.
>
> A few comments --
>
> 1. The rule of thumb for prioritizing retirement saving is:
> (a) contribute to 401(k) up to employer's match
> (b) contribute to Roth IRA to max
> (c) resume contributions to 401(k)
>
> 2. It sounds like you want more say over your portfolio allocation.
> Generally speaking, the fees for this are going to be a tad more expensive
> than sticking with a Target retirement fund. On the other hand the returns
> might be better, too. Also, if you stick with Vanguard funds, the fees are
> going to be on the low side, period.
>
> 3. For ideas on how much to put towards emerging markets, etc., I would
> experiment with free online allocation tools such as those listed at
> . Set allocation %
> goals. Review your goals, and prepare to rebalance, about once a year. Set
> this up on a spreadsheet, so you can easily track what the big picture is
> for your 401(k), IRAs, and non-tax-sheltered retirement savings.
>
> 4. Stock picking takes a lot of time. I would stick with index funds.
>
> 5. I think the only reason to have more than one brokerage is to permit an
> investor to have more than one option at all times. I think you'll be
> fine, for now, with just one brokerage institution. If you really don't
> feel comfortable with this, then have as many as three at any time, and
> start getting some experience with how the quality of service can vary.
>
> 6. Do you have any idea how much money you need to save to retire by a
> certain age? For this, you need to know your monthly expenses and have
> some idea of how these might change. I think for many people it's helpful
> to have a goal in mind. I recommend experimenting with more online
> calculators to give you some ideas.
>
> It sounds like you have some notion that you need to save for retirement,
> but not how much, nor how to do it optimally. So you're definitely on the
> right track, and you're doing right by asking good questions. Keep up the
> good work. See you at MIFP? :-)
>

can you please quote a little of the post to which you are
replying? It's hard to tell at a glance.

Re: Give more to 401k/IRA, or do some plain ol' investing?

<> wrote in message
news:
> > Always max the qualified funds first.
>
> So I should max out my 401k, then max out my IRA, and then worry about
> non-retirement investing? I'm not sure I CAN max any of those out right
> now, unfortunately. I live in a very high cost-of-living city, and I'm
> not sure I can put more than my current 7% of salary into the 401k. I
> could up the percentage a point or two, perhaps, by foregoing
> contributions to the IRA and by tightening my belt a little. Is that
> the generally recommended strategy: max the IRA if at all possible, and
> then only after that worry about the IRA, which should be maxed before
> any other investing is done?

In general (there are some short term exceptions, like when you're cramming
to buy a house, or something) you max every tax advantaged account you can
before you create a play account. I'm all for play accounts, and I'd die of
boredom without mine, but "tax-advantaged" is a synonym for "free money",
and it's not good to pass up free money.
>
> I'll look into ETFs, too. Don't know too much about them.

Love 'em. Want a Phd in index fund investing, read this site: www.ifa.com.

Mike