Summary (was Re: thoughts on these potential rollover investments?)

Hi, all. OP here. Thanks much for all the comments. A lot of the later
comments started to go over my head, so I wanted to see if this is a
correct summary of things:

1) It's more or less agreed that I should move the old 401K money into
an IRA, to give me more control over it.

2) It might be a bad idea to invest my retirement funds in the energy
and international markets. A totally novice question here, though: Is
it correct that those sectors are considered high-risk but potentially
high-profit? If so, aren't those the kinds of things I should invest in
while I'm still somewhat young (relative to retirement-age)? I had
thought that the further you are from retirement, the more aggressive
your portfolio should be. Or am I confusing "aggressive" and "risky"? I
had another question about this, but I'll create another thread to
avoid taking this one on a tanget.

3) Regardless of sector, index or mutual funds might be better
retirement vehicles than ETFs.

4) The D&C International fund may or may not be better than some other
international funds.

If all that is correct, it's sounding like it might be best for me to
put the money in a new IRA, probably consisting of a few fundamental
funds. If I do that, though, will I be overlapping my Vanguard Total
Retirement fund too much? I'm guessing that fund puts money in the many
of the same areas that the typical beginning investor would (or would
be advised to).

Thanks,
Mike



wrote:
> Hi, all. I'm 35 and have the following investments right now:
>
> -- $11K in an old 401K, consisting of a handful of Morgan Stanley
> Aggressive Growth funds
> -- $9K and growing in a Roth IRA, the Vanguard Target Retirement 2045
> fund
> -- Soon to be putting money into a new 401K, the Fidelity Freedom
> 2040 fund
>
> My question concerns where to roll over the old Morgan Stanley 401K
> money. I suppose it wouldn't hurt to leave it where it is, but I've
> become interested in investing in international stuff (emerging
> markets) and the energy industry. (Note, though, that 20% of my Morgan
> money is already in an international fund.) So, because ETFs have been
> recommended, I was thinking of rolling over the $11K, if possible, into
> some sort of IRA consisting of maybe Vanguard or Fidelity ETFs covering
> the international and energy markets; I would probably make only very
> sporadic contributions to those ETFs afterwards, what with the fees and
> all.
>
> Basically, I'm just wondering if that's a wise thing to do with the
> money, and whether any of you might have better fund suggestions. For
> example, would the Dodge & Cox International Stock fund perhaps be a
> better choice for international investments?
>
> Thanks in advance for any help, and my apologies if this question is
> really mundane.

Re: Summary (was Re: thoughts on these potential rollover investments?)

<> wrote
> 1) It's more or less agreed that I should move the old
401K money into
> an IRA, to give me more control over it.

John and I said this, but I think googling the archives will
also yield the same result.

> 2) It might be a bad idea to invest my retirement funds in
the energy
> and international markets.

I am not sure, but you seem to be conflating "international"
with "emerging markets." They're not the same. "Emerging
markets" (EM) may be said to be a kind of sub-category of
"international." EM is arguably more risky than, say, an
index of large value international stocks. To reinforce this
point, try some mutual fund and ETF screening tools. For
example, finance.yahoo.com 's mutual fund screener lists
"Any International Stock Funds" separately from "Emerging
Markets" categories.

Like Tad said, EM is high right now. So is energy. OTOH,
domestic stocks are a little high now, too. So I'd be
tempted to try to time purchases of any stock fund. But I'm
older and have been investing a little longer. You say
you're something of a novice and 35. I think you should keep
reading about investing and sit tight with your current
positions, more or less, until you have devised a master
allocation plan and have watched some fund prices for
awhile.

Money markets are returning around 4% right now. That's fine
for a one-year return for the short-term and may very well
beat many stock funds for a year.

In the alternative, as you say, you're young with a pretty
long time horizon. If you threw your retirement savings into
a carefully allocated mix of index funds (be they ETFs or
mutual funds) today and let it sit for 20 years, I doubt
you'll do poorly.

Definitely keep reading about investing. At some point, one
of your investments /is/ going to go down in value. How will
you respond? Do you cut bait and run? Or do you say, "Pfft.
It will go up after 20 years, and that's all I care about."

> 3) Regardless of sector, index or mutual funds might be
better
> retirement vehicles than ETFs.

Key word being "might," yes. There still might be an ETF
that better satisfies your needs than any mutual fund
currently being offered.

> 4) The D&C International fund may or may not be better
than some other
> international funds.

Sure. Exactly what sort (large cap? small cap? mix?) of
international stocks you want right now isn't clear. I only
wanted to emphasize looking at expense ratios (seeking low
ones) and always avoiding loads.

> If all that is correct, it's sounding like it might be
best for me to
> put the money in a new IRA, probably consisting of a few
fundamental
> funds. If I do that, though, will I be overlapping my
Vanguard Total
> Retirement fund too much? I'm guessing that fund puts
money in the many
> of the same areas that the typical beginning investor
would (or would
> be advised to.

To be logical in one's investing reasoning, I think Total
Retirement Funds are an all-or-nothing vehicle. You either
trust the managers of such funds know how to allocate per
your desires, or you get out of such funds and come up with
your own allocation. Doing-it-yourself may result in higher
overall fee expenses, but not by much if you choose your
funds carefully.

Re: Summary (was Re: thoughts on these potential rollover investments?)

"Elle" <> writes:

> <> wrote
> > If all that is correct, it's sounding like it might be best for me
> > to put the money in a new IRA, probably consisting of a few
> > fundamental funds. If I do that, though, will I be overlapping my
> > Vanguard Total Retirement fund too much? I'm guessing that fund
> > puts money in the many of the same areas that the typical
> > beginning investor would (or would be advised to.
>
> To be logical in one's investing reasoning, I think Total
> Retirement Funds are an all-or-nothing vehicle. You either
> trust the managers of such funds know how to allocate per
> your desires, or you get out of such funds and come up with
> your own allocation. Doing-it-yourself may result in higher

I don't think that's necessarily true. Many folks
recommend setting up a "core" portfolio - diversified and
with an appropriate asset allocation - putting some
substantial chunk of the assets into that core, and
leaving the rest for one to play or explore other
strategies with.

In the OP's case, he really doeesn't have enough assets to make
it all that easy to build a balanced core portfolio
unless he sticks to only a couple of funds. And certainly
not enough to make it worthwhile to put, say, 80% of his
retirement assets into such a portfolio leaving him 20%
to play with international, EM or sectors - unless he does
it by keeping the core portfolio very simple - until he
builds up more, his best bet may well be something like
the target retirement or lifecycle type funds.

As far as concern about "overlapping" by buying one
lifecycle fund when one already has another account fully
invested in a lifecycle fund, that's not really a problem
since both funds are fully diversified. The "overlap"
problem comes when one buys funds which are more narrow
asset classes and one *thinks* one is diversified when
one really isn't.

Meanwhile, I highly recommend that the OP take some time
to read, say, Eric Tyson's "For Dummies" books. The
time you invest in that will have a huge payoff. (There
are other books that folks mention from time to time, but
Tyson's stuff seemed exceptionally accessible - and his
core principles include things we've been talking about,
like low expenses).

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Re: Summary (was Re: thoughts on these potential rollover investments?)

"2) It might be a bad idea to invest my retirement funds in the energy
and international markets. A totally novice question here, though: Is
it correct that those sectors are considered high-risk but potentially
high-profit? If so, aren't those the kinds of things I should invest in

while I'm still somewhat young (relative to retirement-age)? I had
thought that the further you are from retirement, the more aggressive
your portfolio should be. Or am I confusing "aggressive" and "risky"? I

had another question about this, but I'll create another thread to
avoid taking this one on a tanget. "

I would suggest thinking in "different terms".

100% invested in stocks is "aggressive". This woould be best suited
for someone with 20+ years to retire.

this 100% could be divided into:

domestic stocks and international stocks.

I might suggest a 75%-25% mix

within the 75%, have 20-40 large cap, 20 % small cap and 0-30 % mid
cap, large cap value or something else within domestic stocks. if you
want to take a risk with energy stocks, tech stocks, health care or
something else, do it with a percentage of the overall domestic
postion. Someone recomended 5%, I might go as high as 10%..

within the 25% international, I would suggest finding a good
international fund, such as the one listed. have 15-25% go to this
fund. if you want to get clever, find a small cap international fund
and maybe an emerging markets fund, and put 5% in each, with 15% into a
core fund.

If this is within an IRA, this is too many funds and fees might make
this prohibitive. If no ownership fees/ custodial fees are assessed,
there might be some merit to using 2-3 core funds and 2-3 others for
sector plays.

Re: Summary (was Re: thoughts on these potential rollover investments?)

wrote:

> Meanwhile, I highly recommend that the OP take some time
> to read, say, Eric Tyson's "For Dummies" books.

Which one: "Mutual Funds", "Investing", or "Personal Finance"?
Although, I'm guessing they probably overlap a bunch.

Thanks,
Mike

Re: Summary (was Re: thoughts on these potential rollover investments?)

Elle wrote:
> I am not sure, but you seem to be conflating "international"
> with "emerging markets."

I might have been using the terms interchangeably earlier, but I
believe it's the emerging markets that interested me.

> Money markets are returning around 4% right now. That's fine
> for a one-year return for the short-term and may very well
> beat many stock funds for a year.

Are you saying that money markets might be a good place to store the
money from my old 401k until I can get more educated on all this? Can a
401k be rolled over into a money market?

> Definitely keep reading about investing. At some point, one
> of your investments /is/ going to go down in value. How will
> you respond? Do you cut bait and run? Or do you say, "Pfft.
> It will go up after 20 years, and that's all I care about."

I'd probably shrug it off. I don't really pay much attention as it is
to how well my investments are doing, because I figure that they'll go
up on average over the years.

Thanks!
Mike

Re: Summary (was Re: thoughts on these potential rollover investments?)

"> writes:
> wrote:

> > Meanwhile, I highly recommend that the OP take some time
> > to read, say, Eric Tyson's "For Dummies" books.
>
> Which one: "Mutual Funds", "Investing", or "Personal Finance"?
> Although, I'm guessing they probably overlap a bunch.

All of them, but the most comprehensive - the one which
is wider but not as deep - is Personal Finance. That'll
help you judge more than just your investments, but your
loans and insurance and other related matters. As important
as choosing the right funds might be, you need to look at
a broader picture as well.

Investing and PersFin both have chapters about choosing
a mutual fund, so, at least that much overlaps across
all of them. FWIW, he loves Vanguard for most of the
reasons we talk about here.

Head to a bookstore and browse all three. Browsing's
still free.


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Re: Summary (was Re: thoughts on these potential rollover investments?)

<> wrote
snip for brevity; please look back
> Are you saying that money markets might be a good place to store the
> money from my old 401k until I can get more educated on all this? Can a
> 401k be rolled over into a money market?

Yes and yes.

The long answer is that I think you're not quite clear on the vocabulary
here. You hold an account titled, for legal purposes, as a "401(k)." Being a
401(k), it has certain features attaching to it, like tax benefits and
restrictions on withdrawals. When one leaves an employer, one has the option
of changing ("rolling over") the account to an "IRA" (specifically, a
traditional IRA). "IRA" is another title for legal purposes. An IRA has
different features attaching to it. For your purposes, the major difference
is, like John and I and others in the past here have suggested, that you'll
likely have more flexibility regarding whether you want to put the money in
the account into stocks, bonds, ETFs, mutual funds, various money market
funds, etc., and you can probably invest within the IRA account for lower
fees.

Re an investment going down in the short term:
> I'd probably shrug it off. I don't really pay much attention as it is
> to how well my investments are doing, because I figure that they'll go
> up on average over the years.

AFAIC, that's a good start. Hit some of those books Bread recommended; be
open to googling and reading consumer sites on the subject of investing;
maybe try the _Millionaire Next Door_ for fun; remember that, if something
sounds too good to be true, it's probably false; and you'll be in good
shape.

Examples of online sources for introductions to fundamentals:
finance.yahoo.com , investopedia.com (for basic definitions) ,
morningstar.com (has some advertising), smartmoney.com , etc. Or start
another thread and ask people what are their favorite recommendations for a
relative newbie's reading. Suze Orman and Clark Howard and IIRC a guy named
Dave Ramsey do media shows (TV, radio) that, if you notice them, are worth
watching/hearing.

Lurk here often. The fundamentals of investing are repeated time and again.
Remember, assuming a certain amount of research or homework has been done in
advance, the only stupid question is an unasked one. (Though you sound
plenty smart enough to know this. You're going to do well.)

IMO misc.invest.mutual-funds is a place to get ideas for comparing mutual
funds and ETFs. Or if you're totally baffled at where to find a particular
type of fund. E.g. one can ask there what emerging market mutual funds and
ETFs people like. Caveat: My sense is folks at MIMF tend to believe in
chasing returns. Here at MIFP, most folks seem to have read enough to know
that chasing returns is a losing proposition.

You can take the point up at both groups and note the differences, if you
wish. Doing so does give perspective.