Stuck and a bit scared to proceed

[Blessed]

I know I need to put more $ in retirement investments so it can grow. I have tried to understand these things and just can not get a grasp on it. I have made an appointment with an investment pro ( which has me very nervous!) but wanted some insight from people who do not make a profit off of the advice given to me to compare hers too. Hope that makes sense.

Here is our picture:

~ I am a super budget-er, a black belt tightwad and saver but stumped beyond belief at investing.

~we are both 43

~annual income $65K

~home is paid off and worth $185k as of assessment in July

~ no debt at all

~ my spouse contributes 6% to his 401k to get the match. It is in target date funds

~ We have approx $25K in retirement accounts. All but $1000 is in my spouses accounts

~ my spouse will receive a modest pension if nothing changes

~ I have $300k in a savings account earning very little because I feel paralyzed with what to do with it. I am very risk adverse.

So do you have any suggestions for me? I have been browsing the forums and was amazed how savy people are about these things!

[BuckyBadger]

First off, who is your "pro?" Because unless you're paying him something for this visit, he's going to make him money by selling you something that you may not need.

But aside from that:

If you are able to save so much outside of the retirement accounts I would immediately start maxing out the 401k of your husbands. That'll give you $17,000 a year toward retirement. You're fine to keep that in target date funds.

I would also immediately open a Roth IRA through Vanguard for each of you and put $5,000 into each account. This will put another $10,000 away for you. You should fully fund this account with another $5,000 each every January. This money can also be kept in a target date fund for simplicity. I'm assuming your income is low enough to do this directly. If not, you'll be able to do a "Backdoor Roth" and get the money into a Roth that way.

Those two steps alone will vastly increase and improve your retirement savings. You will be automatically putting $27,000 away every year in tax advantaged retirement accounts.

Once you start investing outside of tax-advantaged retirement accounts it starts to get a little bit harder because of the tax implications. But it's still not hard!!

For what it's worth, my husband and I use a three fund "lazy" portfolio. (You can google that...) This portfolio includes Total Stock Market, Total International Stock Market, and Total Bond Market. All vanguard index funds. We used some conventional wisdom on how much you should have in stocks and how much in bonds. To determine out asset allocation we used the "your age in bonds" idea, so we are 30% bonds. Of our 70% stocks, we are 70% US and 30% International. This gives us an overall portfolio of 30% bonds, 50% US stocks, and 20% International bonds.

Now, the only reason we did this instead of just using a target retirement fund was because of the funds that were available in our 401k and 403b from through work. Target retirement funds do the exact same thing. They use Total Stock, Total International, and Total Bond index funds and they balance them as you get older to decrease your risk, so as you get closer to retirement age you will hold fewer stocks and more bonds. Also, when you start including taxable investing, you don't want bonds in those accounts for tax purposes, and the target date funds have bonds in them.

There is a LOT of research that says a three or four fund portfolio gets you about 99% of what an "slice and dice" portfolio would get you, but you have to really research and spend a lot of time to slice and dice the market.

So invest your retirement in tax advantaged accounts, google three fund lazy portfolio, invest in index funds, modify your asset allocation as you head toward retirement age, and don't check your balances more than once a month if even that frequently.

I know this was a lot at once, but it's really not too bad once you get everything started. It sort of goes on auto pilot. Maxing your 401k and starting two Roth IRAs are no-brainers. If you want to get a little bit more complex you can take it one step at a time.

And you don't have to pay anyone a dime to do this on your own!!

PM me if you have any specific questions. I've gotten very into the three-fund portfolio thing, and we have a bunch of tax advantaged and taxable investments!

[Petunia 100]

What is it specifically you "cannot get a grasp" on?

You say you are risk adverse. Do you know there is more than one kind of risk? For example, there is the risk that your money will not grow enough and you will fall short of your goals.

Cash in an FDIC insured account is free from the risk of loss of principal. However, cash erodes in value over time due to inflation. Interest you can earn safely on cash rarely if ever keeps pace with inflation. This is not unique to our current low-interest rate environment. Sometimes people speak fondly of the days when you could get a nice 10% CD. I remember those days, too. I also remember that at the time inflation was up around 14%.

If you have a large enough pile of cash that you don't need it to grow at all and can afford to have it eroded away by inflation, then you can stay all in cash if you want to. However, most of us need our savings to grow faster than the rate of inflation.

The best way to minimize risk is to diversify.

[Blessed]

Petunia I totally grasp that the money won't grow and keep up and that is a problem. I have read a ridiculous number of books trying to grasp investing and it is like reading Greek to me. It is not even humanly possible for us to build up enough cash that we don't need it to grow. That is why I am asking for advice. My expertise is budgeting it, saving it, and getting the most for our $. After that I am very un-savvy!

[BuckyBadger]

I just noticed your annual income. How did you save $300k on $65k a year??

Anyway, I would max the 401k and take what you need to live out of that $300k for the time being. Keep putting $10k a year into Roth accounts. That would be a great way to funnel money into your retirement accounts. In that case, you won't really have to worry about investing outside of your tax advantaged space.

It will take you 11 years to funnel that money into the accounts, though... You might have to think about taxable investing. It does no good to keep all that money out of the market for so long.

Okay, I have to know -- how did you save 5.5 years of your husband's after tax income??

[Blessed]

First off, who is your "pro?" Because unless you're paying him something for this visit, he's going to make him money by selling you something that you may not need.

But aside from that:

If you are able to save so much outside of the retirement accounts I would immediately start maxing out the 401k of your husbands. That'll give you $17,000 a year toward retirement. You're fine to keep that in target date funds.

I would also immediately open a Roth IRA through Vanguard for each of you and put $5,000 into each account. This will put another $10,000 away for you. You should fully fund this account with another $5,000 each every January. This money can also be kept in a target date fund for simplicity. I'm assuming your income is low enough to do this directly. If not, you'll be able to do a "Backdoor Roth" and get the money into a Roth that way.

Those two steps alone will vastly increase and improve your retirement savings. You will be automatically putting $27,000 away every year in tax advantaged retirement accounts.

Once you start investing outside of tax-advantaged retirement accounts it starts to get a little bit harder because of the tax implications. But it's still not hard!!

For what it's worth, my husband and I use a three fund "lazy" portfolio. (You can google that...) This portfolio includes Total Stock Market, Total International Stock Market, and Total Bond Market. All vanguard index funds. We used some conventional wisdom on how much you should have in stocks and how much in bonds. To determine out asset allocation we used the "your age in bonds" idea, so we are 30% bonds. Of our 70% stocks, we are 70% US and 30% International. This gives us an overall portfolio of 30% bonds, 50% US stocks, and 20% International bonds.

Now, the only reason we did this instead of just using a target retirement fund was because of the funds that were available in our 401k and 403b from through work. Target retirement funds do the exact same thing. They use Total Stock, Total International, and Total Bond index funds and they balance them as you get older to decrease your risk, so as you get closer to retirement age you will hold fewer stocks and more bonds. Also, when you start including taxable investing, you don't want bonds in those accounts for tax purposes, and the target date funds have bonds in them.

There is a LOT of research that says a three or four fund portfolio gets you about 99% of what an "slice and dice" portfolio would get you, but you have to really research and spend a lot of time to slice and dice the market.

So invest your retirement in tax advantaged accounts, google three fund lazy portfolio, invest in index funds, modify your asset allocation as you head toward retirement age, and don't check your balances more than once a month if even that frequently.

I know this was a lot at once, but it's really not too bad once you get everything started. It sort of goes on auto pilot. Maxing your 401k and starting two Roth IRAs are no-brainers. If you want to get a little bit more complex you can take it one step at a time.

And you don't have to pay anyone a dime to do this on your own!!

PM me if you have any specific questions. I've gotten very into the three-fund portfolio thing, and we have a bunch of tax advantaged and taxable investments!

She is with an investment firm ( Principal). She was suggested to us by a friend with the explanation that she is very good at helping you understand what she is doing and why before and $ is moved. One of my ?'s for her is exactly how she is paid. I have a list of 17 questions for her that was given to me by someone much wiser than myself.

One of my problems with investing is that in 2008 we lost $40K. We are no where even close to recovering what was lost. It was in the last 18 months we moved it to the target date funds. Does it matter that his target date funds don't really seem to grow? Ok , max out his 401K at work. Got it. I can go online and do that today.

I'm not sure on the income limits for the Roth but we only made in the 60's last year and I don't see next year going over $70K since we only have 1 full time earner.


I really do appreciate you breaking this down for me with no terms I need a financial dictionary to understand! I shall do some research on what you suggested. Thanks again.

[Petunia 100]

Petunia I totally grasp that the money won't grow and keep up and that is a problem. I have read a ridiculous number of books trying to grasp investing and it is like reading Greek to me. It is not even humanly possible for us to build up enough cash that we don't need it to grow. That is why I am asking for advice. My expertise is budgeting it, saving it, and getting the most for our $. After that I am very un-savvy!

Investing doesn't have to be complicated. It can be pretty darn simple.

Make the big decisions. (How much in stocks/bonds). Keep your costs low. Choose broad market index funds whenever possible. Rebalance once a year or so. That's it.

(I never invest in individual stocks. That involves a lot of risk if you don't know what you are doing. Investing in the index guarantees you will receive market returns less expenses. Over time, the index outperforms 80% of all actively managed funds. That's a pretty sweet deal.)

You can even get simpler than that. You can choose a single fund such as one of Vanguard's LifeStrategy or Target Retirement funds.

I suggest you visit Vanguard's website. There is a lot of useful information on Vanguard and on investing in general.

[BuckyBadger]

One of my problems with investing is that in 2008 we lost $40K. We are no where even close to recovering what was lost. It was in the last 18 months we moved it to the target date funds. Does it matter that his target date funds don't really seem to grow? Ok , max out his 401K at work. Got it. I can go online and do that today.

You will drive yourself CRAZY with that sort of thinking. You are in it for the LONG HAUL. Pick an appropriate balance of stocks and bonds and STAY THE COURSE. Don't even look at the balance sheet.

If you are in the appropriate mix, a market crash (though it will suck) won't hurt you.

[Blessed]

First off, who is your "pro?" Because unless you're paying him something for this visit, he's going to make him money by selling you something that you may not need.

But aside from that:

If you are able to save so much outside of the retirement accounts I would immediately start maxing out the 401k of your husbands. That'll give you $17,000 a year toward retirement. You're fine to keep that in target date funds.

I would also immediately open a Roth IRA through Vanguard for each of you and put $5,000 into each account. This will put another $10,000 away for you. You should fully fund this account with another $5,000 each every January. This money can also be kept in a target date fund for simplicity. I'm assuming your income is low enough to do this directly. If not, you'll be able to do a "Backdoor Roth" and get the money into a Roth that way.

Those two steps alone will vastly increase and improve your retirement savings. You will be automatically putting $27,000 away every year in tax advantaged retirement accounts.

Once you start investing outside of tax-advantaged retirement accounts it starts to get a little bit harder because of the tax implications. But it's still not hard!!

For what it's worth, my husband and I use a three fund "lazy" portfolio. (You can google that...) This portfolio includes Total Stock Market, Total International Stock Market, and Total Bond Market. All vanguard index funds. We used some conventional wisdom on how much you should have in stocks and how much in bonds. To determine out asset allocation we used the "your age in bonds" idea, so we are 30% bonds. Of our 70% stocks, we are 70% US and 30% International. This gives us an overall portfolio of 30% bonds, 50% US stocks, and 20% International bonds.

Now, the only reason we did this instead of just using a target retirement fund was because of the funds that were available in our 401k and 403b from through work. Target retirement funds do the exact same thing. They use Total Stock, Total International, and Total Bond index funds and they balance them as you get older to decrease your risk, so as you get closer to retirement age you will hold fewer stocks and more bonds. Also, when you start including taxable investing, you don't want bonds in those accounts for tax purposes, and the target date funds have bonds in them.

There is a LOT of research that says a three or four fund portfolio gets you about 99% of what an "slice and dice" portfolio would get you, but you have to really research and spend a lot of time to slice and dice the market.

So invest your retirement in tax advantaged accounts, google three fund lazy portfolio, invest in index funds, modify your asset allocation as you head toward retirement age, and don't check your balances more than once a month if even that frequently.

I know this was a lot at once, but it's really not too bad once you get everything started. It sort of goes on auto pilot. Maxing your 401k and starting two Roth IRAs are no-brainers. If you want to get a little bit more complex you can take it one step at a time.

And you don't have to pay anyone a dime to do this on your own!!

PM me if you have any specific questions. I've gotten very into the three-fund portfolio thing, and we have a bunch of tax advantaged and taxable investments!

I just noticed your annual income. How did you save $300k on $65k a year??

Anyway, I would max the 401k and take what you need to live out of that $300k for the time being. Keep putting $10k a year into Roth accounts. That would be a great way to funnel money into your retirement accounts. In that case, you won't really have to worry about investing outside of your tax advantaged space.

It will take you 11 years to funnel that money into the accounts, though... You might have to think about taxable investing. It does no good to keep all that money out of the market for so long.

Okay, I have to know -- how did you save 5.5 years of your husband's after tax income??

We had our home paid off by age 26 and have never done debt besides the house. We also had a higher income for about 5 years while I was a full time earner. It also helps living in a low cost of living area. The biggest thing though was no non mortgage debt. I do use my credit card to keep our scores up since we haven't had a mortgage in many years but pay in full monthly.
Every week $ is electronically funneled to savings and has been for years. I'm a tightwad and since I haven't been able to work full time in years I take my job of making the money we do make behave and stretch seriously. I am a dunce on investing but am proud to say I have been able to help lots of our friends learn to do things more frugally and get a budget on track.

[Blessed]

You will drive yourself CRAZY with that sort of thinking. You are in it for the LONG HAUL. Pick an appropriate balance of stocks and bonds and STAY THE COURSE. Don't even look at the balance sheet.

If you are in the appropriate mix, a market crash (though it will suck) won't hurt you.

See that is what I need to hear.

[Blessed]

Investing doesn't have to be complicated. It can be pretty darn simple.

Make the big decisions. (How much in stocks/bonds). Keep your costs low. Choose broad market index funds whenever possible. Rebalance once a year or so. That's it.

(I never invest in individual stocks. That involves a lot of risk if you don't know what you are doing. Investing in the index guarantees you will receive market returns less expenses. Over time, the index outperforms 80% of all actively managed funds. That's a pretty sweet deal.)

You can even get simpler than that. You can choose a single fund such as one of Vanguard's LifeStrategy or Target Retirement funds.

I suggest you visit Vanguard's website. There is a lot of useful information on Vanguard and on investing in general.

Thank you Petunia. See I need to look up what a broad market index fund is to be honst. I do know what re balancing is actually and had done that online with some investment before we went to target date

We do have 1 individual stock in non retirement funds with my husbands employers stock. There is not a lot there though and only $10 week goes to buy more by payroll deduction. My husbands employer has a good discount on it.

That is suggestion number 2 for Vanguard. It sounds like I need to check that out.

[Petunia 100]

One of my problems with investing is that in 2008 we lost $40K. We are no where even close to recovering what was lost. It was in the last 18 months we moved it to the target date funds. Does it matter that his target date funds don't really seem to grow? Ok , max out his 401K at work. Got it. I can go online and do that today.

I'm not sure on the income limits for the Roth but we only made in the 60's last year and I don't see next year going over $70K since we only have 1 full time earner.

Trying to jump in and out of the market is something that the vast majority of us cannot do successfully. This is exactly why you need to make an investing plan and stick with it.

I have a traditional IRA which I have not added to since January 2008. (Beginning in 2009, I decided to fund my Roth instead). Right before the big drop in 2008, it was worth 106k. It got down to barely 60k, which I don't mind saying was not much fun for me. What did I do? Not much. I did re-balance. As of yesterday, the value of the account is 120k. This is what comes of making a reasonable plan and sticking with it.

You and dh can both max Roths. In fact, you should.

[green_goblin12]

Be very leery of the "pro" you will visit. It does not hurt to talk to one, but they are going to sell you products (likely their propriety products) that pad their pockets the most. They will be frothing at the mouth when you tell them you are a novice and don't know what to do. They may seem very likeable, knowledgeable, and helpful, but they are in it for themselves. Nobody knows you better than yourself, and it is YOUR money after all. They are salespeople, nothing more.

Investing doesn't have to be complicated. You are already familiar with target-date funds. This is one approach. Really what you need is to figure out your asset allocation target and check out a low-cost provider like Schwab, Vanguard, or Fidelity.

[Blessed]

That is fantastic that your bounced back so well! Plus that makes your advice very valuable to me since you have been there and done that! I will 100% go for the Roths since they grow tax free.


Does anyone have any opinions on Principal since that is whom we have an appointment with. The friend that suggested the adviser we will see is a HUGE Dave Ramsey fan and learn through this person because they were endorsed by Dave Ramseys program.

[Blessed]

Be very leery of the "pro" you will visit. It does not hurt to talk to one, but they are going to sell you products (likely their propriety products) that pad their pockets the most. They will be frothing at the mouth when you tell them you are a novice and don't know what to do. They may seem very likeable, knowledgeable, and helpful, but they are in it for themselves. Nobody knows you better than yourself, and it is YOUR money after all. They are salespeople, nothing more.

Investing doesn't have to be complicated. You are already familiar with target-date funds. This is one approach. Really what you need is to figure out your asset allocation target and check out a low-cost provider like Schwab, Vanguard, or Fidelity.

I do agree with what you are saying and will be leery. I guess we will be doing a risk assessment test and just talking. I do not plan to actually bring any account numbers etc with me. I had planned to and just turn it over but a friend told me absolutely not too. I was told to see what their plan was for us first and to not be so trusting.