Ok, I'll bite.....How am I doing too?

[arioch]

Hello to all in the forum, I'm new as well. I just read the thread authored by 'Starry' and was curious about the same thing....I guess that is why I joined the forum, to try and be better at handling my savings. If not for me, then for my wife and daughter who are COMPLETELY dependant upon me.

I'm actually very similar to 'Starry'; I'm 47, married (my wife is 9 yrs. younger), we have a 4 yr. old daughter.

I make about $75,000 a year....I'm an independent contractor.

I have no debt, other than my mortgage ($85,000 @ 4.25% on a 15 yr. fixed....I'm about 2 yrs. in on that loan).

I have:
$100K+ in a MM acct.
Savings = $5k+
Checking = 12k+
Daughter's CD = $5100+

Investments:.....UGH!....this past week, and actually all summer....
but as of today, I have about $130-$140k in a 401k, a solo 401K, an SEP, a Roth, and an individual IRA (I KNOW I need to consolidate....and have been waiting for a good chance to do this....then the market tanked again).

Little 'Miss Moneybags' already has about $20k in her 529! (Sometimes I can make a good decision!...got lucky with that one)

SO here I am...trying to do better...

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(I KNOW I need to consolidate.

Why? Since I don't know the future, I prefer to diversify. Maybe a Roth IRA will be best when I retire, and maybe it won't. I can't know right now.

Little 'Miss Moneybags' already has about $20k in her 529! (Sometimes I can make a good decision!...got lucky with that one)

I have 4 kids (2 currently in college) and we decided against the 529. That isn't to say that your decision is bad, but it isn't always the best decision for people.

I'm sure most people will say that you have way too much in cash. Personally, I disagree in this economy.

[arioch]

...I'm sure most people will say that you have way too much in cash. Personally, I disagree in this economy.

Thank you 'Photo'....yes, that is how the cash ballooned....got burned in the '99 crash, got burned again when they flew the jets into the world trade center towers,....and then again in 2008 up to now....

I deliberately built up the cash for my own comfort level (I got married during this time as well)....it's the investment funds, I seem to keep picking bad ones...They struggle and claw to make pennies, and in just one day lose multiple dollars.....and fool that I am....I start all over again.....that's how the cash builds up.

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My reasoning may be different from yours, however. The stock market never just goes up and up. It's the nature of the beast that it rises and falls. Since you're a few decades from retirement, you can stand that volatility, and if you're using that cash for long-term cash insurance, you're actually losing money because mm funds rarely (if ever) keep up with inflation.

I like cash so that when great investment opportunities arise, I can seize them. But I also have some big expenses coming up, as well. If your $100,000 is for long-term investing, you should consider putting a little bit elsewhere so that it can grow.

Pulling out of the stock market when it's down (such as 2008) is what the vast majority of people do. And that's why they get burned. If you can weather those down times, your money (at least, historically) will grow.

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it's the investment funds, I seem to keep picking bad ones...They struggle and claw to make pennies, and in just one day lose multiple dollars.

You can't measure the stock market by one day totals. What kinds of funds are you choosing? I'm no expert, but index funds seem like one of the best long-term investment tools. I've lost about $40,000 in the stock market in the past few weeks, yet I'm not terribly concerned because, like you, I have cash for when I need it, and my mutual funds are for long-term investing.

When you look at prospectuses, look at five and ten-year totals and don't forget those all-important expense ratios and any front or dump loads.

[kork13]

If you're interested in consolidating your retirement accounts, now is a good time to do it, while your values (and the realized gains you owe taxes on) are lower. That assumes you want to consolidate into a Roth IRA. If you consolidate to a regular IRA, it doesn't matter (taxable gains remain tax deferred). In either case, doing it now is a good choice if you want to consolidate.

As for your main question, you unfortunately don't have enough money saved anywhere right now, regardless of if it's in cash or investments. By the way, you probably are too cash-heavy right now. At the least, consider moving a good chunk of that into bonds, preferably better-earning investments like some no-load index mutual funds. But in any case... You have ~20 years left for your money to grow, and assuming you save $1k/mo (you didn't say how much you save, so I guessed) and have good market returns (5%/yr above inflation...which may or may not be a valid assumption), you'll have about $1M if you retire at 67, which will only produce about $1700/mo in income. $2k/mo gets to $1.4M ($2300/mo income), $3k/mo gets to $1.8M ($3000/mo income). None of those figures probably look very promising to you... You will likely have social security available to you, probably to the amount of around $2000/mo. But that still may be a little short, so the bottom line is, you're short on your savings.

So my initial thoughts (without knowing more) are simply this: You need to buckle down and save up as much as you reasonably can. You simply don't have enough right now to put you in a good place for retirement. Earn more if you can, trim expenses, and save, save, save, save.


ETA: I understand your motivation to build up an education fund for your daughter... But don't do that at the risk of your own retirement. If you're adding any more than $100-$200/mo to her 529, you're doing too much. I bring this up simply because she's already got $20k in only 4 years. Add $200/mo for the next 14 years, she'll have $80k ready for her use. If that doesn't cut it for her, she can always get student loans. You can't do that for your retirement.

Also, minor note... All of my figures here are based on after-inflation values, since it's easier to conceptualize with "today's dollars".

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Why? Since I don't know the future, I prefer to diversify. Maybe a Roth IRA will be best when I retire, and maybe it won't. I can't know right now.

What?? Consolidation has nothing to do with diversification...

If you have 3 accounts at different places, and each of them is 100% invested in GM - you are not diversified at all.

The tax benefits of a pre-existing SEP, 401k, Solo 401k, and Traditional IRA are all identical. There is no benefit to keeping the accounts separate - unless they are currently in use, for funding reasons.

If you move all the pre-tax money to one account, and all the post-tax to the Roth - you can lower transaction costs (if any), keep the funds in one place, qualify for services some brokerage firms offer based on asset size, etc.

Diversification has to do with the actual investments owned within the accounts - not with how many accounts you have...

I'm sure most people will say that you have way too much in cash. Personally, I disagree in this economy.

OP- I would be one of those people who says you have too much in cash.

You say you have it ready in case an opportunity arises that you want to seize: what would that opportunity look like?

Have you spoken with someone about creating a plan for your retirement?

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What?? Consolidation has nothing to do with diversification...

If you have 3 accounts at different places, and each of them is 100% invested in GM - you are not diversified at all.

Bad wording on my part. I meant diversification (I'm not sure what word to use here) in which type of retirement account -- traditional IRA, Roth IRA, or 401(k). In other words, don't have only a Roth IRA or only a traditional IRA or only a 401(k).

[arioch]

If you're interested in consolidating your retirement accounts, now is a good time to do it, while your values (and the realized gains you owe taxes on) are lower....

Thank you 'Kork'....maybe I was using the wrong term. What I have been looking to do is roll the 401k, & the SEP, into the solo 401k, which allows me to do that. My understanding is the SEP will not allow the 401k's to be rolled in, and I can put more into the solo 401k anyway.

I have thought about converting the Individual IRA into a Roth...and it does seem like it is a good time to do that one now....if I am willing to pay the taxes out of pocket.

...you didn't say how much you save, so I guessed...

about $1200 a month, which represents 20% of pay. I pay quarterly taxes so, I pull 10% off the top and send it in to the solo 401K, and then take 10% and put that in the savings accounts (I've recently started upping the cash to 15%, and will for as long as I can. I intend to plunk down a Roth contribution at the end of the year....I haven't been doing the Roth since 2008).

...and have good market returns (5%/yr above inflation...which may or may not be a valid assumption).....

well...there it is....I seem to have picked bad ones (funds and advisors). For example; in '99 I had over $50k in the 401k (Fidelity contrafund), then the market tanked...I sought out an advisor who pulled me out of that and I have never recovered from that...It now has only 15k left in it...

ETA: I understand your motivation to build up an education fund for your daughter... But don't do that at the risk of your own retirement. If you're adding any more than $100-$200/mo to her 529, you're doing too much.....

That is the amount I put in. That is the amount I can get an income tax deduction for ($2500), past that I don't get the tax break....her fund has done well.

Thank you, and all, for your input....I'm trying here, I'm trying to learn.

A few other thoughts from what I have read from others so far:

-I have zero real understanding of bonds....I am interested, but have never really completely understood them. Wouldn't it be a bad time for them now? Given the debt crisis? (I'm in the U.S.)

-The cash built up because of my growing leeriness of the markets. I do know that I do not have enough in the investments...so the vicious cycle perpetuates.

-Advisors....I'll never forgive myself for listening to that one that convinced me to get out of the Contrafund...so, I'm trying on my own

[arioch]

...You say you have it ready in case an opportunity arises that you want to seize: what would that opportunity look like?

That was not me who said that.....

I have not had good experiences with advisers...in fact the complete opposite

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-Advisors....I'll never forgive myself for listening to that one that convinced me to get out of the Contrafund...so, I'm trying on my own

Probably the best thing you can do is to read several books on beginning investing. As you know well, there is no "right" way to do things. We all have different tolerance levels for risk and different goals. Read up on all you can and then make the best decisions you have with that information.

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For example; in '99 I had over $50k in the 401k (Fidelity contrafund), then the market tanked...I sought out an advisor who pulled me out of that and I have never recovered from that...It now has only 15k left in it...

I'm confused. How can you have 15k left if your advisor took you out of it? Morningstar has it rated 5 stars (excellent) for a 10-year investment and rates it low risk with high return, which is exactly what you want with a mutual fund. The expense ratio is higher than index but still under the average. Overall, it looks like a very good return, but only if you didn't play around with it.

Fidelity Contrafund: MUTF:FCNTX quotes & news - Google Finance

[jpg7n16]

That was not me who said that.....

I have not had good experiences with advisers...in fact the complete opposite

You're absolutely right, I misread the thread. Sorry about that.

If you've had bad experiences with advisors, what are you hoping to hear from us? What do you expect from people who give you advice? In other words, what would be a good experience and how could we help you have one?

IMO- you are overweighted in cash holdings. (likely a fear based decision based on your experience with advisors in the past) Even if your entire 401k + IRA + etc. was invested in stocks and bonds, you're still around a 40-50% cash allocation with 100k in MM.

Here is a free calculator for your asset allocation: Asset Allocator

It is created through the Iowa Public Employees Retirement System, and is intended as a guide to let you know if you're on track.

And your cash allocation puts you at the expected allocation for a 90+ year old man (took me a while to find what factors would indicate a 40-50% cash allocation). Prob not appropriate for where you are in life.

[arioch]

I'm confused. How can you have 15k left if your advisor took you out of it? Morningstar has it rated 5 stars (excellent) for a 10-year investment and rates it low risk with high return, which is exactly what you want with a mutual fund. The expense ratio is higher than index but still under the average. Overall, it looks like a very good return, but only if you didn't play around with it.

That is correct...I am no longer in Contrafund....I have never recovered from that. If I had stayed, the account would have resuscitated....instead she advised me to go into one of the funds she was managing (sold low of course). I was naively looking for someone to advise me on whether I should stay in my investments or not...Irrespective of whether they would have had a commission stake in a potential move or not.

At the end of the day,...it was my fault, not hers....no one put a gun to my head to do anything...it is what it is....at this point, maybe you might understand my reluctance to consult professional advisors...and maybe I am in the wrong forum....

Is this a forum utilized by pros?...my initial impression was that it was a little more informal....peer to peer

[kork13]

We do/have had some 'pros', but it's largely a bunch of people interested in finances who want to discuss it and help as we can.

I'd recommend a simple S&P 500 index mutual fund and starting there, expanding into a small/mid-cap index fund, mid-term bond index fund, and international stock index fund. Those could easily serve as the core of your portfolio. Index funds are the cheapest and easiest way to go, as long as you are willing to simply add money to it every month and leave it alone. No advisers to mislead or overcharge you, only you and your investments.

As for your concerns with bonds, even though S&P downgraded the US debt, it's still pretty darn iron-clad, and there's still no safer place to be. One type of risk involved with bonds is called interest rate risk. When interest rates rise, bond values typically fall. However, the Fed recently came out and said they don't plan to raise rates for another 2 years. So bonds will likely stay fairly steady at least on that front. Plus, bonds continually throw off income distributions (which make a Roth the perfect place to hold bonds), so you make a fair chunk off of those distributions over time.