how to take advantage of down market?

[rigz]

currently my wife and I have maxed out our ROTH IRAs. we are both relatively young (mid 30s) and went with a vanguard target fund which was mostly stocks...so obviously we got killed recently. i try not to think about it or worry because its a long term thing.

HOWEVER, i would like to take advantage of the down market so that in a few years i can look back and say "boy im glad I bought then". (hopefully)

so, without wanting to day trade or look at any individual stocks, what is my best option (hands off approach)? can i continue buying in my vanguard target fund that is outside the ROTH? are there any better options? im an investing rookie so please excuse my ignorance.

thanks.

[rennigade]

I have 2 seperate vanguard funds, ones a total stock fund and the other is a mutual fund. I started 2 days ago of transfering money to those 2 accounts. Going to keep doing it little by little (no more than $1000/account at a time.) I screwed up last time the market went to pot in 08, dont want to miss out this time.

[rigz]

I have 2 seperate vanguard funds, ones a total stock fund and the other is a mutual fund. I started 2 days ago of transfering money to those 2 accounts. Going to keep doing it little by little (no more than $1000/account at a time.) I screwed up last time the market went to pot in 08, dont want to miss out this time.

which mutual fund should i go with? do i just open a new account with them outside my ROTH?

why only $1000 a time? is that for legal reasons or for investing reasons?

[jpg7n16]

Ignore the no more than $1000 at a time. Don't know where that came from.

What you really need to do is create a plan for where you want the rest of your investing future to go.

To that end, it is probably more important that you create a plan for how you will invest going forward, rather than focus on - am I buying at precisely the right time?

What percent of your income will you save this year? What goals will you save for: just retirement? or are there other financial needs you have? Where will you invest your money going forward: roth? traditional? 401k? brokerage? can you automate that process with automatic investments somehow?

Those types of questions...

Unless you're in a super high tax bracket, I would utilize your Roths. They can provide tax free income in retirement, and tons of flexibility in how you'll make your withdrawals in retirement. I would also take any employer match - as much as they give, take it.

If your Roths have already been maxed out - then yes, consider opening a regular brokerage account to add more investments for your future. Also consider a brokerage account if you need to save for goals other than retirement that you'd need money before age 60 (housing down payment, boat, etc. whatever you guys want out of life)

If you don't want to have individual stocks, you'll need to use mutual funds. Yes - you got killed a bit the past few weeks, but also the price for your new purchases got much lower. During the buying/accumulation stage of life, it actually benefits you to have lower prices - you get more for your money.

And Target date funds are a pretty smart idea. They automatically invest in other funds and change the allocation over time to better suit how a moderate investor should change their portfolio over time. They're usually a good choice for a novice investor who doesn't know how to reallocate, etc. Different companies have them, so I'd try and find a company with very low fees to get in the fund. No load if possible. If you're happy with the Vanguard target date fund, I think adding to your position would be a good idea.

[krantcents]

Actually it is a good idea to have a brokerage account! Any gains will be taxed at 15%, however you will have to pay taxes annually. In terms of strategy, I would determine how much you could invest on an annual basis outside your 401K and Roth IRA. I don't think I would put all of it in at once. I might invest a portion each month for the next 4-6 months. The market has been very volatile and I don't expect that to end real soon. Good luck.

[rennigade]

Typically I put $400/month into my roth ira. I didn't want to invest $10k in one shot. $1000 this week, market may tank next week, invest another $1000, etc etc. Ride the lightening the whole way down baby.

[bjl584]

currently my wife and I have maxed out our ROTH IRAs. we are both relatively young (mid 30s) and went with a vanguard target fund which was mostly stocks...so obviously we got killed recently. i try not to think about it or worry because its a long term thing.

HOWEVER, i would like to take advantage of the down market so that in a few years i can look back and say "boy im glad I bought then". (hopefully)

so, without wanting to day trade or look at any individual stocks, what is my best option (hands off approach)? can i continue buying in my vanguard target fund that is outside the ROTH? are there any better options? im an investing rookie so please excuse my ignorance.

thanks.

Slow and steady wins the race. Buying into your funds regularily over the course of many years will lessen the impact of down markets.

That being said, I was buying the morning after the 600+ point drop in the Dow. I bought into a few stocks and funds that I felt were oversold. I don't try to time the market, but if an opportunity presents itself, then I want to have the cash on hand to take advantage of it. I normally buy into certain funds automatically at the beginning of each month no matter the market conditions. I just always keep some cash on hand to jump into the market when a correction occurs.

[Scanner]

I would only add to buy what %age of risk can have you sleep well at night if you lost 50% tommorrow, as it's a real possibility.

I am approximately 47% in cash now after I cashed in some shorts but I have a large position in a microcap. . .the rest is in some vanilla equities.

I am actually comfortable with that risk mix, may tweak a little bit.

[rigz]

Ignore the no more than $1000 at a time. Don't know where that came from.

What you really need to do is create a plan for where you want the rest of your investing future to go.

To that end, it is probably more important that you create a plan for how you will invest going forward, rather than focus on - am I buying at precisely the right time?

What percent of your income will you save this year? What goals will you save for: just retirement? or are there other financial needs you have? Where will you invest your money going forward: roth? traditional? 401k? brokerage? can you automate that process with automatic investments somehow?

thanks for the info.

currently we save around 25% of our income to both retirement and savings (including emergency fund).

our goals are to save as much as we can to retire down the road. we dont have much other current financial needs but once we have kids (no kids yet) we will need to save for college.

we both max out our ROTHs each year and she contributes to her TSP every year as well.

Those types of questions...

Unless you're in a super high tax bracket, I would utilize your Roths. They can provide tax free income in retirement, and tons of flexibility in how you'll make your withdrawals in retirement. I would also take any employer match - as much as they give, take it.

agreed - we do all of that.

If your Roths have already been maxed out - then yes, consider opening a regular brokerage account to add more investments for your future. Also consider a brokerage account if you need to save for goals other than retirement that you'd need money before age 60 (housing down payment, boat, etc. whatever you guys want out of life)

ok, thanks - this is what i was wondering mostly.

since ive never done any of this or any investing at all (so far our ROTHs are in the target funds so we dont really do anything with it...just sits there).

If you don't want to have individual stocks, you'll need to use mutual funds. Yes - you got killed a bit the past few weeks, but also the price for your new purchases got much lower. During the buying/accumulation stage of life, it actually benefits you to have lower prices - you get more for your money.

perfect...any recommendations for mutual funds at vanguard?

And Target date funds are a pretty smart idea. They automatically invest in other funds and change the allocation over time to better suit how a moderate investor should change their portfolio over time. They're usually a good choice for a novice investor who doesn't know how to reallocate, etc. Different companies have them, so I'd try and find a company with very low fees to get in the fund. No load if possible. If you're happy with the Vanguard target date fund, I think adding to your position would be a good idea.

right now our target funds are in our ROTHs - can we buy more target funds that are not in the ROTH? if so, what are the tax implications of doing so?

thanks for all the help!

[rigz]

Actually it is a good idea to have a brokerage account! Any gains will be taxed at 15%, however you will have to pay taxes annually. In terms of strategy, I would determine how much you could invest on an annual basis outside your 401K and Roth IRA. I don't think I would put all of it in at once. I might invest a portion each month for the next 4-6 months. The market has been very volatile and I don't expect that to end real soon. Good luck.

what if i gain some money this year and then lose it next year? can i write any of the losses off?

despite the 15% tax, are these investments still worth it? right now a lot of our money is sitting in savings making pretty much 0. i guess better than losing but we are looking long term...we need to make our money work for us.

[rigz]

Slow and steady wins the race. Buying into your funds regularily over the course of many years will lessen the impact of down markets.

That being said, I was buying the morning after the 600+ point drop in the Dow. I bought into a few stocks and funds that I felt were oversold. I don't try to time the market, but if an opportunity presents itself, then I want to have the cash on hand to take advantage of it. I normally buy into certain funds automatically at the beginning of each month no matter the market conditions. I just always keep some cash on hand to jump into the market when a correction occurs.

agreed - i do want to take advantage of the down swing (even though it sucks now) and i do look long term.

i guess my main question is how do i get involved for the long term? i dont want to buy and sell individual stocks or day trade. i just want to buy the right packages that can benefit us long term. i dont know what funds to get (mutual funds? target funds? etc)

[jpg7n16]

since ive never done any of this or any investing at all (so far our ROTHs are in the target funds so we dont really do anything with it...just sits there).

Well don't think that it's just sitting there then. It's invested in a mutual fund with a good asset allocation. That money's working for you, even though the market has been going down recently so it might feel like it's working against you.

perfect...any recommendations for mutual funds at vanguard?

Mutual Funds: https://personal.vanguard.com/us/fun...ion?reset=true
ETFs: https://personal.vanguard.com/us/fun...ion?reset=true

right now our target funds are in our ROTHs - can we buy more target funds that are not in the ROTH? if so, what are the tax implications of doing so?

thanks for all the help!

The target date fund is just a mutual fund with an allocation that targets a need at the specified date. In your case - retirement.

You can buy any mutual fund in a regular brokerage account (as long as your institution can house the investment), so there is nothing stopping you from buying a target date fund. They are usually used for retirement, but that doesn't mean they can only be held in a retirement account.

Tax implications: it will act just like a regular mutual fund. You'll be taxed on dividends and capital gain distributions in the year that they are made - just like with any other mutual fund. When you sell the investment, you will be taxed on any capital gain, taxed subject to your holding period (short term, long term).

[rigz]

Well don't think that it's just sitting there then. It's invested in a mutual fund with a good asset allocation. That money's working for you, even though the market has been going down recently so it might feel like it's working against you.


links removed

thanks

The target date fund is just a mutual fund with an allocation that targets a need at the specified date. In your case - retirement.

You can buy any mutual fund in a regular brokerage account (as long as your institution can house the investment), so there is nothing stopping you from buying a target date fund. They are usually used for retirement, but that doesn't mean they can only be held in a retirement account.

ok thanks - followup question: currently our ROTHs (wife and I) are fully funded in the same target fund (2040 i think). if i want to start investing outside the ROTH, is it a bad idea to continue investing in the same target fund? is that a waste of time? is that not "diversifying" enough? i really want to avoid buying specific stocks or doing any day trading? i want a hands off approach and just let it grow without checking it much.

Tax implications: it will act just like a regular mutual fund. You'll be taxed on dividends and capital gain distributions in the year that they are made - just like with any other mutual fund. When you sell the investment, you will be taxed on any capital gain, taxed subject to your holding period (short term, long term).

ok so what if i make $xxx in 2012 and then lose $xxx in 2013? would those cancel out or do i still pay taxes on what i made? do you only pay taxes when you "sell" a mutual fund?

or what if i make $xxx in 2012, pay taxes on it, then january 1, 2013 (for example) the market crashes and i lose whatever was left?

i hope my questions make sense...still trying to learn how it all works.

thanks.

[jpg7n16]

ok thanks - followup question: currently our ROTHs (wife and I) are fully funded in the same target fund (2040 i think). if i want to start investing outside the ROTH, is it a bad idea to continue investing in the same target fund? is that a waste of time? is that not "diversifying" enough? i really want to avoid buying specific stocks or doing any day trading? i want a hands off approach and just let it grow without checking it much.

You might wanna take a look at this little video thing from Fidelity. It talks about diversification and target date funds (Fidelity calls their's 'Freedom Funds'). It's a couple minutes long.

Fidelity Investments Fundamentals of Investing

In the end, what you find out is that mutual funds themselves are very diversified. And target date funds have both asset allocation and diversification. So you could be invested in only 1 target date fund, but because of the diverse composition of that fund, be very well diversified.

ok so what if i make $xxx in 2012 and then lose $xxx in 2013? would those cancel out or do i still pay taxes on what i made? do you only pay taxes when you "sell" a mutual fund?

or what if i make $xxx in 2012, pay taxes on it, then january 1, 2013 (for example) the market crashes and i lose whatever was left?

i hope my questions make sense...still trying to learn how it all works.

thanks.

If you made $xxx in 2012, you would be responsible for taxes on any dividends, interest, and gains from the sale of a mutual fund that occured in the calendar year 2012. If your mutual fund just went up and you didn't sell - there is no taxable event, so no tax is due. This is called an 'unrealized gain.' But if you bought say $5000 of a mutual fund, and later sold that fund for $6000, the sale is a taxable event, and you would be taxed on the $1000 gain you made. This is called a 'realized gain.' (Realized means to close the position)

Similar things apply for 2013. If you held a mutual fund in 2013, you would be responsible for taxes on any dividends, interest, and gains from a sale. If your mutual fund fell in value, but you didn't sell, there was no taxable event so therefore no deductible loss. You would still pay taxes on the dividends and interest.

(fyi - this is about to get complicated, it may just be best to ask a CPA what to do about tax planning)

However, if you sold your investment at a loss in 2013 the rules become different. If you bought the fund for $5000 and sold it for $3000, you had a taxable event - but it was a loss of $2000. The IRS allows you to deduct up to $3000 of capital losses against regular income. So you could deduct the $2000 against current year's income.

If you somehow had a capital loss of more than the $3000, you can carry forward the excess loss into future years - where you can either cancel out future gains on sales, or take your $3000/year. So if you invested $400,000 and it fell in value to $360,000 and you sold - you would have a loss of $40,000. You could take $3000 as a deduction against income this year, and carry forward the remaining $37,000 loss. Say you reinvested your $360,000 in a different fund, and sold it next year for $380,000. You would then have a taxable gain of $20,000 - but you have your carried forward loss of $37,000, so you can apply $20k of your $37k to wipe out the gain. Leaving your $17k carried forward loss. Then take your $3,000 for the year, and carry forward the remaining $14k. Rinse and repeat.

Publication 550 (2010), Investment Income and Expenses

Sorry if I lost you on that. Taxes can get complicated.

[rigz]

thanks - that makes sense...kind of

im still learning but that did help. i like the examples with numbers. makes it easier to understand.

so if i buy 10k worth of target funds (not ROTH) and i just let it sit there (never take anything out) for 10 years, it has no tax implications for those 10 years? only if i take money out back into my bank account?