Stuck and a bit scared to proceed

[sblatner]

You are a super saver. Congratulations on all you have achieved. I would call Vanguard and talk to someone there. I bet they can set you up with a conservative portfolio until you are ready to take some risk.

[Petunia 100]

No we didnt pull out. We had it it in stuff that we shouldnt have because I understood none of it. I picked them all by just choosing the stocks with the highest 10 year average. Nothing was at all balanced and too much was foreign and risky stuff based on the 10 year average. Nothing was in bonds etc. I'm going to admit pure stupidity here but after we saw how much we had lost I just let it all sit and didnt even look at it. About 18 months ago we changed everything that was left over to the target date funds. They really dont seem to grow besides the 6% that goes it. Nor do they seem to lose.

My first toe-dip into investing was in now ex-h's 457 plan. I knew I needed to diversify, so I chose the 4 mutual funds with the best trailing 1 year returns available in his plan. I had no idea I had simply chosen 4 large-cap growth funds (yes, it was the mid-90s) and that I wasn't diversified at all. I had never even heard the terms "large-cap" or "growth". Ha!

We all make mistakes. You've learned from yours, so all is not lost. You have plenty of time to recover your loss.

You don't have to invest aggressively, if it is outside of your comfort zone. A conservative portfolio of 50/50 stocks/bonds can still produce nice returns and allow you to sleep well at night.

[Blessed]

You are a super saver. Congratulations on all you have achieved. I would call Vanguard and talk to someone there. I bet they can set you up with a conservative portfolio until you are ready to take some risk.

Thank you!

My first toe-dip into investing was in now ex-h's 457 plan. I knew I needed to diversify, so I chose the 4 mutual funds with the best trailing 1 year returns available in his plan. I had no idea I had simply chosen 4 large-cap growth funds (yes, it was the mid-90s) and that I wasn't diversified at all. I had never even heard the terms "large-cap" or "growth". Ha!

We all make mistakes. You've learned from yours, so all is not lost. You have plenty of time to recover your loss.

You don't have to invest aggressively, if it is outside of your comfort zone. A conservative portfolio of 50/50 stocks/bonds can still produce nice returns and allow you to sleep well at night.

Your story made me smile because you sure seem to have a good grasp on it now! Conservative is totally my nature. After seeing the attorney yesterday he gave me two advisers he personally uses. He says he uses both for a reason and explained why. He gave me some very good advice. I need to remember to send him a thank you

[kv968]

When you meet with the Principal rep, don't agree to anything. Insist you need time to review the advice and think it over.

Definitely don't sign or agree to anything. As a matter of fact I'd have my mind made up that I wouldn't be using Principal period. Listen to what he/she has to say but if you want financial advice and feel the need to pay for it, hire a fee-ONLY advisor.

The funds that Principal are going to recommend are loaded funds with high expense ratios (ER). ER's are the annual amount that you'll pay for the fund itself. You won't see it since it's deducted over time but it adds up. The load itself you'll feel because it's either going to be front-end "A" class shares or back-end/deferred "B" or "J" class shares.

Let me just run you through what you might hear so you can be prepared when they go through this "alphabet soup", as I like to call it, of mutual funds. If the advisor talks about "A" class shares, what that most likely means is there will be an upfront (i.e. front-end) load of 5 - 5.5% (could be less in some instances) of the money you put in. So for every $100 you invest only $95-$94.50 is actually getting invested.

I noticed on their website that have "J" shares for some of their funds. These have deferred (i.e back-end) loads. The advisor may suggest these if you don't want to pay a front-end load and they have a back-end load of "only" 1%. That may sound better but the problem lies with the fact that the 1% is the applied to the total amount of the fund when you redeem it. So in other words, you're paying 1% on the money you put in there PLUS whatever gains you made. And in either case, the annual ER you'll be paying is much higher than comparable funds.

For a better comparison I looked up their "target date" fund for 2040:
The "A" shares (PTDAX) have a front-end load of 5.5% and an ER of 1.15%
The "J" shares (PTDJX) have a back-end load of 1% and an ER of 1.16%

Using T. Rowe Price's 2040 Target Date Fund (TRRDX) as a comparison since it's also an actively managed fund, that fund has NO load (front or back) and an ER of 0.76% (nearly half of the Principal Funds).

Vanguard's 2040 Target Date Fund (VFORX) which isn't actively managed and uses index funds also has NO load and has an ER of 0.19%.

Again, go and listen to what they have to say, I just wanted to give you a heads-up as to what you may hear. And if you feel the need for an advisor, no disrespect to your friend who loves this one, I'd look into getting a fee-only one instead.

Good luck and if you have any other questions or aren't sure about some something, feel free to ask. There are plenty here who can give you good, unbiased advice.

[Blessed]

Thanks for the advice KV. To be very honest after reading here and having a phone conversation with the 2 people the attorney recommended I decided I am going to cancel the appointment at principal. I'll just tell them we decided to go with someone our attorney recommended which is true.

Both of the recommended people charge a fee for their time and have access to all investments not just 1 company like Principal does. They also can do my taxes. Both will consult with me free of charge the 1st time. I like the idea highly that the attorney recommended them. That attorney really gave me a lot of good advice on all this stuff.

[snafu]

OP, good on you for being a successful super saver! I hope you'll share your knowledge with us.

I'm sad to see you define yourself as 'risk adverse.' There is an element of risk in long term investments but we ride it out. My retirement & non retirement portfolios [savings] lost as much as 50% in some sectors, all but one have recovered 110% and the laggard is s-l-o-w-l-y returning to profitability. The trick is to know what you are investing in and why the market is gyrating.

I nearly chocked on my tea when I read you were seeing an investment counselor @ Principal. That particular company charges major fees and their lack of investment ethics had them flee Canada for less strict requirements in USA. I too recommend working with a low cost Management Expense Ratio [MER], ethical firm like Vanguard. I second all that Petunia explained for less risk, more profit and easy to understand.

Let us know how you work through problems, we're always here to help with no motivation but for you to succeed. Wish you well

[Blessed]

OP, good on you for being a successful super saver! I hope you'll share your knowledge with us.

I'm sad to see you define yourself as 'risk adverse.' There is an element of risk in long term investments but we ride it out. My retirement & non retirement portfolios [savings] lost as much as 50% in some sectors, all but one have recovered 110% and the laggard is s-l-o-w-l-y returning to profitability. The trick is to know what you are investing in and why the market is gyrating.

I nearly chocked on my tea when I read you were seeing an investment counselor @ Principal. That particular company charges major fees and their lack of investment ethics had them flee Canada for less strict requirements in USA. I too recommend working with a low cost Management Expense Ratio [MER], ethical firm like Vanguard. I second all that Petunia explained for less risk, more profit and easy to understand.

Let us know how you work through problems, we're always here to help with no motivation but for you to succeed. Wish you well

The appt with Principal was cancelled. i think a few will be glad to read that. We do have an ancient 401k with them from an old job. I looked at the papers and they were J funds just like someone mentioned here. They have never really grown in the last 15 years. looking closely you are all right there are a LOT of fees. I have to say at this point and time I am risk adverse. That could change once I actually understand what I am doing though. Time will tell I guess.

As far as the savings knowledge I'll be glad to share anything anyone wants to know.

[kv968]

The appt with Principal was cancelled. i think a few will be glad to read that. We do have an ancient 401k with them from an old job. I looked at the papers and they were J funds just like someone mentioned here. They have never really grown in the last 15 years. looking closely you are all right there are a LOT of fees. I have to say at this point and time I am risk adverse. That could change once I actually understand what I am doing though. Time will tell I guess.

As far as the savings knowledge I'll be glad to share anything anyone wants to know.

Glad to hear it and I hope you find a decent financial advisor. Just make sure you find out how they get paid. My rule of thumb would be if they start talking about the "alphabet soup" of classes (i.e "A" shares..."C" shares..."J" shares), I'd be outta there since you're more than likely talking about funds with expenses above the norm that you really don't need to be paying. Not saying that the funds themselves might be bad but if you're paying a high fee you're going in with the deck stacked against you in a sense. Find a good fee-only advisor, sit down and talk to them, find out all the particulars and if you click, then go for it.

I know you're risk-adverse but you have to take some sort of risk in order to even stay ahead for the most part. And hopefully an advisor can explain it all to you, make you feel at the very least somewhat comfortable with it and devise a plan that'll work for you. That's what they're there for ultimately.

Just remember there are many risks out there besides just losing money in the stock market. I'd be willing to say you're actually losing with the amount of money you have sitting in the bank account. You may not be losing in a nominal sense, but due to inflation and the low rates you're losing purchasing power in the real sense. There's always a risk, even if it seems inconsequential, to nearly everything.

[kv968]

We do have an ancient 401k with them from an old job. I looked at the papers and they were J funds just like someone mentioned here. They have never really grown in the last 15 years. looking closely you are all right there are a LOT of fees.

Oh, and although you might want to wait until you meet with an advisor, you'll want to take that old 401k and roll it over into a rollover IRA at some point.

[snafu]

Blessed, glad to see you acknowledge fees from Principal. What will you do next? What action do you plan? when will you do it? I suggest you list suggestions given, highlight those you prefer and start PDQ. The more you procrastinate, the more purchasing power you are losing. I don't mean to sound cranky but this is too important to ignore no matter if fear, frozen or whatever reason.

[mgkimsal]

I can't see why anyone would give up the employer match. That is FREE $! How can you not want free $ ????

Two points re: Dave Ramsey.

I'm not sure where someone got the idea that he's suggested managed funds. I don't recall him ever actively promoting that. He's constantly advocating no-load funds, low-expenses ratios, (and index funds from what I remember). Maybe he's changed in the past few years? I never heard anything he promoted that could be considered "obscenely bad advice".

Giving up an employer match - this would probably be advocated during an initial "pay down a lot of debt and get an emergency fund". Employer matches don't necessarily mean 'free money' on day 1 - often there's a vesting period of multiple years. If you're already past that, fine (maybe). For many people, it's better to be paying off 20% debt *today* than it is to be potentially getting some 'free employer match'. That match often comes with strings, like, you can't quit the job for X years, or it's only invested in a small selection of high-expense poorly managed funds, etc. Getting rid of, say, $5k of 20% credit card interest over a year is a long term better plan for many people than investing that $5k in a retirement account and getting the 'free match'. But it needs to be accompanied by real behavioural change, which is really at the heart of the Ramsey show/philosophy.

It sounds like the OP already has a strong handle on the 'avoid debt' part. The biggest part, by far, of Dave's investing advice is *learn about what you're doing*. Of course he will recommend his advisors, but he didn't always have that network in place, but has always advocated taking the time to learn what mutual funds are, index funds, etc.

OP - it sounds like you've tried to do that on your own and have been overwhelmed. I think you will need an advisor. The one piece of advice I would give is meet with multiple advisors for some initial consultation. Meet with 5. Meet with 10. Take your time. You've got years to deal with this, and you need to find someone you're comfortable with and can trust. In terms of net worth you're already miles ahead of many other people - take your time and find the right person or team that matches your style and personality. Don't get bullied in to anything.

Good luck to you!

[UnknownXV]

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.

Interest rates on average were slightly above inflation for the past 50 decades. Only now is it that your money doesn't just not grow, but actually loses value by just being in a savings account.

It's disgusting. This environment is geared to the benefit of debtors, not savers.

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??

I could do that fairly easily actually. Spend 15k on 65k a year.. leaves 50k a year to save. Even without interest, it would just take 6 years to get to 300k.

Assuming that's the after tax value, if not.. yeah, would take longer. Still possible.. and no it's not remotely easy.

[Blessed]

Glad to hear it and I hope you find a decent financial advisor. Just make sure you find out how they get paid. My rule of thumb would be if they start talking about the "alphabet soup" of classes (i.e "A" shares..."C" shares..."J" shares), I'd be outta there since you're more than likely talking about funds with expenses above the norm that you really don't need to be paying. Not saying that the funds themselves might be bad but if you're paying a high fee you're going in with the deck stacked against you in a sense. Find a good fee-only advisor, sit down and talk to them, find out all the particulars and if you click, then go for it.

I know you're risk-adverse but you have to take some sort of risk in order to even stay ahead for the most part. And hopefully an advisor can explain it all to you, make you feel at the very least somewhat comfortable with it and devise a plan that'll work for you. That's what they're there for ultimately.

Just remember there are many risks out there besides just losing money in the stock market. I'd be willing to say you're actually losing with the amount of money you have sitting in the bank account. You may not be losing in a nominal sense, but due to inflation and the low rates you're losing purchasing power in the real sense. There's always a risk, even if it seems inconsequential, to nearly everything.

The attorney that recommended them told me how they get paid but I will have them explain it too me again. He also recommended several people that handle his investments. He said he uses several because each have different tactics and styles and it keeps it very diversified. He also stated every one of the recommended people would rake as long as it took to make sure I understood every step of what I was doing and why. He was also nice enough to say I could also ask him any questions i ever had about this or any other topic. Our attorney really is a super guy and I should have asked his opinions sooner.

I do understand there is some risk to everything in life. I'm just not so sure about the stock market risks because of a few things. I haven't really wanted to really put this out there because I don't want to seem like a nut job!!! I am not really up on this stuff but it really seems to me when you look at the value of homes and the stock market from the mid 90's to 2008 that the numbers don't quite jive. Income was on a slow rise compared to these numbers flying up fast. Why? When I look at the charts of growth only during this period did it look like tat too me. We also went through a period of easy credit and people cashing out all the equity in their homes spending money that seemed to disappear once housing values started to tank. Also with our gov putting all the extra money into circulation it seems to me is is falsely propping up the economy and the markets in my very amateur opinion. I know I sound drearily pessimistic but I have a fear the markets may tank a bit more yet because of that. I think someone knowing much more than me can answer my questions and explain the why's to me so I feel more secure with it.

Oh, and although you might want to wait until you meet with an advisor, you'll want to take that old 401k and roll it over into a rollover IRA at some point.

Yes, for sure!

Blessed, glad to see you acknowledge fees from Principal. What will you do next? What action do you plan? when will you do it? I suggest you list suggestions given, highlight those you prefer and start PDQ. The more you procrastinate, the more purchasing power you are losing. I don't mean to sound cranky but this is too important to ignore no matter if fear, frozen or whatever reason.

I meet with one of them next Thur. I can't say exactly what the plan is since I haven't met with him yet. You don't sound mean and cranky at all. After all look how long I put it off already!

Two points re: Dave Ramsey.

I'm not sure where someone got the idea that he's suggested managed funds. I don't recall him ever actively promoting that. He's constantly advocating no-load funds, low-expenses ratios, (and index funds from what I remember). Maybe he's changed in the past few years? I never heard anything he promoted that could be considered "obscenely bad advice".

Giving up an employer match - this would probably be advocated during an initial "pay down a lot of debt and get an emergency fund". Employer matches don't necessarily mean 'free money' on day 1 - often there's a vesting period of multiple years. If you're already past that, fine (maybe). For many people, it's better to be paying off 20% debt *today* than it is to be potentially getting some 'free employer match'. That match often comes with strings, like, you can't quit the job for X years, or it's only invested in a small selection of high-expense poorly managed funds, etc. Getting rid of, say, $5k of 20% credit card interest over a year is a long term better plan for many people than investing that $5k in a retirement account and getting the 'free match'. But it needs to be accompanied by real behavioural change, which is really at the heart of the Ramsey show/philosophy.

It sounds like the OP already has a strong handle on the 'avoid debt' part. The biggest part, by far, of Dave's investing advice is *learn about what you're doing*. Of course he will recommend his advisors, but he didn't always have that network in place, but has always advocated taking the time to learn what mutual funds are, index funds, etc.

OP - it sounds like you've tried to do that on your own and have been overwhelmed. I think you will need an advisor. The one piece of advice I would give is meet with multiple advisors for some initial consultation. Meet with 5. Meet with 10. Take your time. You've got years to deal with this, and you need to find someone you're comfortable with and can trust. In terms of net worth you're already miles ahead of many other people - take your time and find the right person or team that matches your style and personality. Don't get bullied in to anything.

Good luck to you!

Thanks! I need the good luck since I find this confusing. I think you are right to meet with multiple people. Our attorney also advised me to invest with a few different people and if anyone says they won't invest less than xyz to get up and leave.

Interest rates on average were slightly above inflation for the past 50 decades. Only now is it that your money doesn't just not grow, but actually loses value by just being in a savings account.

It's disgusting. This environment is geared to the benefit of debtors, not savers.



I could do that fairly easily actually. Spend 15k on 65k a year.. leaves 50k a year to save. Even without interest, it would just take 6 years to get to 300k.

Assuming that's the after tax value, if not.. yeah, would take longer. Still possible.. and no it's not remotely easy.

That is our pre tax income for a family of 4. We are a 1 full time earner household and one 8-12 hours a week earner. The biggie was paying off the house while still quite young. Seriously that was the best thing we ever did. Also the midwest has a low cost of living compared to some places.

I do remember super high interest rates on savings in the 80's. I remember looking at my grandmas statements and seeing cd's at 16%. However I vaguely seem to remember my parents new home during the same period of time having like a 12% interest rate.

[dontgopoor]

Re: the post about Morningstar -

Morningstar has a two week free trial for their premium services that requires a credit card. You would need to call and cancel the trial to not be charged. If you choose to pursue the trial, you'll need plenty of time during that period to test the waters. I would start the trial on a Thur or Fri before you have a weekend to devote to assessing your portfolio, reading about funds, etc. Then come back the next weekend and dig some more. And if you decide to not stay with the subscription, then cancel within two weeks of the start date.

[Nika]

A single stock can go to zero. Your indexes never will.

Imagining a scenario where AAPL is at 0 tomorrow.

I don't think diversification would help much if that happened. You would need firearms, canned goods and gasoline.